Loan Ownership and Liquidity in the Secondary Loan Market

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

See all articles by João A. C. Santos

João A. C. Santos

Federal Reserve Bank of New York

Pei Shao

Dhillon School of Business, 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

Dhillon School of Business, University of Lethbridge ( email )

345 6 Ave SE
Calgary, Alberta T2G 4V1
Canada
+14033801845 (Phone)
T2G 4V1 (Fax)

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