PDF iconDownload This Paper
Open PDF in Browser
Add Paper to My Library
Permalink
Using these links will ensure access to this page indefinitely
Copy URL
Copy DOI

Institutional Synergies and the Fragility of Loan Funds

68 Pages Posted: 3 Feb 2022 Last revised: 15 Jun 2023

See all articles by Mustafa Emin

Mustafa Emin

University of Alabama

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate

Tao Li

University of Florida - Warrington College of Business Administration; European Corporate Governance Institute (ECGI)

Jing Lu

University of Florida

Date Written: November 15, 2021

Abstract

There are two major institutional investors in the syndicated loan market: collateralized loan obligations (CLOs) and loan mutual funds. CLOs are closed-end funds while loan funds are openend funds that issue claims that are redeemable on demand. In this paper, we examine whether CLOs provide arbitrage capital that contributes to the resilience of loan funds. We find that CLOs act as shock absorbers, providing liquidity through par building trades when loan funds experience large outflows. However, CLO-provided liquidity is limited to par build eligible loans, leading to potential flow-induced fire sales among par build ineligible loans.

Keywords: Leveraged loan, Mutual fund, CLO, Fire sale, Fragility. JEL Classification: G23, G38

JEL Classification: G23, G38

Suggested Citation

Emin, Mustafa and James, Christopher M. and Li, Tao and Lu, Jing, Institutional Synergies and the Fragility of Loan Funds (November 15, 2021). Available at SSRN: https://ssrn.com/abstract=4024592 or http://dx.doi.org/10.2139/ssrn.4024592

Mustafa Emin

University of Alabama ( email )

Tuscaloosa, AL
United States

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3486 (Phone)
352-392-0301 (Fax)

Tao Li (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

308 Stuzin Hall
Gainesville, FL 32601
United States

HOME PAGE: http://https://site.warrington.ufl.edu/tao-li/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://site.warrington.ufl.edu/tao-li/

Jing Lu

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

PDF iconDownload This Paper
Open PDF in Browser

Do you have a job opening that you would like to promote on SSRN?

Place Job Opening

Paper statistics

Downloads
447
Abstract Views
2,377
Rank
140,935
34 References
PlumX Metrics

Related eJournals