Active Loan Trading

59 Pages Posted: 7 Jul 2017 Last revised: 24 Dec 2019

See all articles by Frank J. Fabozzi

Frank J. Fabozzi

EDHEC Business School

Sven Klingler

BI Norwegian Business School

Pia Mølgaard

Copenhagen Business School

Mads Stenbo Nielsen

Copenhagen Business School - Department of Finance

Date Written: February 20, 2018

Abstract

Using a novel dataset of leveraged loan trades executed by managers of collateralized loan obligations (CLOs), we document the importance of "active loan trades" -- trades executed at a manager's discretion. More active trading increases the returns to CLO equity investors, lowers collateral portfolio default rates, and increases the manager's chances of closing a new deal. Examining the observed loan trades, we find that more active CLOs trade at better prices than less active CLOs, selling leveraged loans earlier and before they get downgraded. Our findings suggest that more active CLOs are better at anticipating deteriorations in loan credit quality.

Keywords: Active management, Collateralized loan obligations (CLOs), Market efficiency, Structured finance, Syndicated loans

JEL Classification: G11, G12, G23, G24

Suggested Citation

Fabozzi, Frank J. and Klingler, Sven and Mølgaard, Pia and Nielsen, Mads Stenbo, Active Loan Trading (February 20, 2018). Available at SSRN: https://ssrn.com/abstract=2997057 or http://dx.doi.org/10.2139/ssrn.2997057

Frank J. Fabozzi

EDHEC Business School ( email )

France
215 598-8924 (Phone)

Sven Klingler

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Pia Mølgaard (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Mads Stenbo Nielsen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark
+4538153602 (Phone)

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