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Insider Trading in the Bond Market: Evidence from Loan Sale Events

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  • Massa, Massimo
  • Schmidt, Daniel

Abstract

We investigate the pricing implications of the parallel trading of loans and bonds of the same firm. We show that loan, by making lenders share sensitive information about the borrower with the loan market participants, lower the information advantage of the asset managers affiliated to the lender who respond by reducing their stake in the bonds of the firm whose loans are sold, independently of considerations about the future firm value. This reduces information asymmetry in the bond market and improves its liquidity. This provides the first evidence of a direct informational link between the loan and bond secondary markets.

Suggested Citation

  • Massa, Massimo & Schmidt, Daniel, 2015. "Insider Trading in the Bond Market: Evidence from Loan Sale Events," CEPR Discussion Papers 10446, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10446
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    Cited by:

    1. Batten, Jonathan A. & Lončarski, Igor & Szilagyi, Peter G., 2021. "Strategic insider trading in foreign exchange markets," Journal of Corporate Finance, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Corporate bonds; Information asymmetry; Loan trading;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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