Loan Ownership and Liquidity in the Secondary Loan Market

53 Pages Posted: 14 Apr 2017 Last revised: 17 Apr 2018

João A. C. Santos

Federal Reserve Bank of New York

Pei Shao

University of Lethbridge

Date Written: April 2, 2018

Abstract

We find some support for theories predicting that the presence of informed investors adversely affects liquidity: When arrangers retain a share in the loan this impacts negatively liquidity. We find strong evidence that investor diversity is beneficial to liquidity: Loans with larger syndicates; syndicates with higher investor turnover, more investor types, and lower investor-types’ loan share concentration have lower bid-ask spreads. These findings are robust and do not appear to be driven by investors’ borrower/loan selection. We find that not all investors contribute positively to loan liquidity. While an increase in the number of hedge funds in a syndicate lowers the loan’s bid-ask spread, an increase in the number of banks in the syndicate has the opposite effect, consistent with existing beliefs that asset managers are active traders but banks follow buy-and-hold investment strategies.

Keywords: Loan Syndicate, Investor Diversity, Informed Investors, Loan Market Liquidity

JEL Classification: G14, G21, G22, G23, G24

Suggested Citation

Santos, João A. C. and Shao, Pei, Loan Ownership and Liquidity in the Secondary Loan Market (April 2, 2018). Available at SSRN: https://ssrn.com/abstract=2951451 or http://dx.doi.org/10.2139/ssrn.2951451

João A. C. Santos (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)

HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML

Pei Shao

University of Lethbridge ( email )

4401 University Drive
Lethbridge, Alberta T1K 3M4
Canada

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