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Active Loan Trading

32 Pages Posted: 7 Jul 2017  

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: July 4, 2017


Analyzing a novel dataset of leveraged loan trades executed by managers of collateralized loan obligations (CLOs), we document substantial market inefficiencies. There are four principal results from empirical analysis. First, CLOs with a higher active turnover trade leveraged loans at better prices, the effect being more pronounced for sales than for purchases. Second, more active CLOs sell leveraged loans earlier. Third, leveraged loan sales by active managers predict rating downgrades in the sold loans. Finally, higher active turnover predicts lower CLO default rates and higher equity returns. Tests with a placebo variable, capturing passive turnover, lead to insignificant results.

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 (July 4, 2017). Available at SSRN:

Frank Fabozzi

EDHEC Business School ( email )

215 598-8924 (Phone)

Sven Klingler

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

Pia Mølgaard (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000

Mads Nielsen

Copenhagen Business School - Department of Finance ( email )

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

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