Active Loan Trading

Frank J. Fabozzi, Sven Klingler, Pia Mølgaard, Mads Stenbo Nielsen

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

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.
Original languageEnglish
Article number100868
JournalJournal of Financial Intermediation
Number of pages17
ISSN1042-9573
DOIs
Publication statusPublished - 25 May 2020

Bibliographical note

Epub ahead of print. Published online: 25 May 2020.

Keywords

  • Active management
  • Collateralized loan obligations (CLOs)
  • Market efficiency
  • Structured finance
  • Syndicated loans

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