The Cross-Section of Expected Returns in the Secondary Corporate Loan Market

Review of Asset Pricing Studies, Forthcoming

40 Pages Posted: 15 Feb 2018

See all articles by Mehdi Beyhaghi

Mehdi Beyhaghi

Federal Reserve Banks - Federal Reserve Bank of Richmond

Sina Ehsani

Northern Illinois University

Date Written: December 27, 2016

Abstract

Corporate loans increasingly have become an important part of portfolio management with the advent of a liquid and transparent secondary market. This paper examines the pricing of characteristics and betas in the cross-section of expected loan returns. Expected loan returns decrease with default beta. Default beta contains information not captured by rating or spread-to-maturity. Among loan characteristics, a 3-month formation momentum strategy earns a monthly premium of 122 bps. Momentum is prominent in loans issued by the lowest-rated borrowers.

Keywords: Default risk, Expected return, Momentum, Secondary corporate loan market

JEL Classification: G10, G12, G20

Suggested Citation

Beyhaghi, Mehdi and Ehsani, Sina, The Cross-Section of Expected Returns in the Secondary Corporate Loan Market (December 27, 2016). Review of Asset Pricing Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2616131 or http://dx.doi.org/10.2139/ssrn.2616131

Mehdi Beyhaghi

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Sina Ehsani (Contact Author)

Northern Illinois University ( email )

Chicago, IL 60115
United States

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