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Institutional stock trading on loan market information

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  • Ivashina, Victoria
  • Sun, Zheng
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    Abstract

    One of the most important developments in the corporate loan market over the past decade has been the growing participation of institutional investors. As lenders, institutional investors routinely receive private information about borrowers. However, most of these investors also trade in public securities. This leads to a controversial question: Do institutional investors use private information acquired in the loan market to trade in public securities? This paper examines the stock trading of institutional investors whose portfolios also hold loans. Using the Securities and Exchange Commission filings of loan amendments, we identify institutional investors with access to private information disclosed during loan amendments. We then look at abnormal returns on subsequent stock trades. We find that institutional participants in loan renegotiations subsequently trade in the stock of the same company and outperform trades by other managers and trades in other stocks by approximately 5.4% in annualized terms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 100 (2011)
    Issue (Month): 2 (May)
    Pages: 284-303

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    Handle: RePEc:eee:jfinec:v:100:y:2011:i:2:p:284-303

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Institutional investors Syndicated loans Insider trading;

    References

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    Cited by:
    1. Henk Berkman & Michael McKenzie & Patrick Verwijmeren, 2013. "Hole in the Wall: Informed Short Selling ahead of Private Placements," Tinbergen Institute Discussion Papers 13-153/IV/62, Tinbergen Institute.
    2. Efraim Benmelech & Jennifer Dlugosz & Victoria Ivashina, 2011. "Securitization without Adverse Selection: The Case of CLOs," NBER Working Papers 16766, National Bureau of Economic Research, Inc.
    3. Kedia, Simi & Zhou, Xing, 2014. "Informed trading around acquisitions: Evidence from corporate bonds," Journal of Financial Markets, Elsevier, vol. 18(C), pages 182-205.
    4. Fecht, Falko & Hackethal, Andreas & Karabulut, Yigitcan, 2013. "Is proprietary trading detrimental to retail investors?," Discussion Papers 42/2013, Deutsche Bundesbank, Research Centre.
    5. Vikas Agarwal & Costanza Meneghetti, 2011. "The role of hedge funds as primary lenders," Review of Derivatives Research, Springer, vol. 14(2), pages 241-261, July.

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