Equity Price Discovery with Informed Private Debt

66 Pages Posted: 15 Nov 2016 Last revised: 15 May 2018

See all articles by Jawad M. Addoum

Jawad M. Addoum

Cornell University

Justin Murfin

Yale University - School of Management

Date Written: May 11, 2018


Equity markets fail to account for value-relevant non-public information enjoyed by syndicated loan participants and reflected in publicly posted loan prices. A long-short strategy that buys (sells) the equities of firms whose debt has recently appreciated (depreciated) earns monthly alphas of 1.4 to 2.2%. The strategy returns do not appear consistent with risk-based explanations, nor are they affected by drivers of firm-specific attention, including having loan returns publicly reported in the Wall Street Journal. Instead, when we condition on the subsample of equities held by mutual funds that also trade in syndicated loans, returns to the strategy are eliminated.

Keywords: Syndicated loans, private information, stock returns, return predictability, market integration

JEL Classification: G11, G12, G14, G21, G23

Suggested Citation

Addoum, Jawad M. and Murfin, Justin, Equity Price Discovery with Informed Private Debt (May 11, 2018). Available at SSRN: https://ssrn.com/abstract=2869452 or http://dx.doi.org/10.2139/ssrn.2869452

Jawad M. Addoum (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Justin Murfin

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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