Can Equity Volatility Explain the Global Loan Pricing Puzzle?
Office of the Comptroller of the Currency
EPFL- Chair of International Finance
June 25, 2013
Review of Financial Studies, 2013, Volume 26, Issue 12, Pages 3225-3265
This paper examines whether unobservable differences in firm volatility are responsible for the global loan pricing puzzle, which is the observation that corporate loan interest rates appear to be lower in Europe than in the United States. We analyze whether equity volatility, an error prone measure of firm volatility, can explain this difference in loan spreads. We show that using equity volatility in OLS regressions will result in biased and inconsistent estimates of the difference in U.S. and European loan spreads. We use instrumental variable methods to identify consistent estimates and find no difference in U.S. and European loan spreads.
Number of Pages in PDF File: 55
Keywords: syndicated loans, equity volatility, loan spread
JEL Classification: E40, G12, G15, G21Accepted Paper Series
Date posted: March 19, 2012 ; Last revised: November 22, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.843 seconds