Why does increased stock borrow costs decrease a stock's forward price?

Question

The author in this article -- http://streetwiseprofessor.com/?p=7294 -- states that an increase in stock borrowing costs decreases a stock's forward price:

In the absence of manipulation, the forward price of a stock should be the current spot price plus the cost of financing the position at the prevailing interest rate until the delivery date on the forward. In the absence of a squeeze, the cost/fee to borrow the stock should be small. However, in a squeeze, it is costly to borrow the stock: the bigger the squeeze, the bigger the cost of borrowing. This borrowing cost depresses the forward price. Thus, during a squeeze, the forward price is below the spot price plus financing costs.

But why? Shouldn't the effect be similar to increased dollar financing rates, namely an increase in the forward price?

Answer 1

The rate of interest on cash and the cost of borrowing the stock work in opposite directions. Think of the cost of borrowing the stock as a kind of "dividend" that the stock pays off to its holders. As a stock owner you receive this amount [if you lend the shares] while you pay the interest rate if you hold the stock on margin.