Private Information Dissemination in the Secondary Loan Market: The Effect on Stock Bid-ask Spreads

63 Pages Posted: 6 May 2021

See all articles by Anthony Saunders

Anthony Saunders

New York University - Leonard N. Stern School of Business

Pei Shao

Dhillon School of Business, University of Lethbridge

Yuchao Xiao

Deakin Business School, Deakin University

Date Written: April 28, 2021

Abstract

We consider loans being marked to market to constitute new information that is only immediately available to large institutional traders, so-called qualified institutional buyers (QIBs). Smaller investors (non-QIBs) do not have instant access to such information. Investigating the effects of privileged information releases on bid-ask spreads of borrowing firms’ equity, we find a significant elevation in the level of information asymmetry that affects those spreads. Our paper reveals that private information dissemination in the secondary loan market affects the stock market information environment and yields benefits to large insiders with priority access to important information about the borrowing firms’ quality.

Keywords: Secondary loan market, Stock bid-ask spread, Institutional investors, Information asymmetry, Insider trading

JEL Classification: G14 G18 G23 D82

Suggested Citation

Saunders, Anthony and Shao, Pei and Xiao, Yuchao, Private Information Dissemination in the Secondary Loan Market: The Effect on Stock Bid-ask Spreads (April 28, 2021). NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3840717 or http://dx.doi.org/10.2139/ssrn.3840717

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Pei Shao (Contact Author)

Dhillon School of Business, University of Lethbridge ( email )

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

Yuchao Xiao

Deakin Business School, Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

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