Active Loan Trading
32 Pages Posted: 7 Jul 2017
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: Suggested Citation