The interaction between security lending market and security trading market

We develop a parsimonious model to address the interaction between security lending market and security trading market. When a security is easy to borrow, short-selling leads to a lower spot price. When a security is hard to borrow, any CHANGE in shorting supply/demand should be largely absorbed by the lending market, and thus has minimal impact on the spot price. A positive lending fee implies that the negative opinion of short sellers is offset by the opposite view of security lenders, leaving the equilibrium security price that reflects only the perception of those who neither lend nor short.