Active Loan Trading
59 Pages Posted: 7 Jul 2017 Last revised: 24 Dec 2019
Date Written: February 20, 2018
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: Suggested Citation