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Trading costs of private debt

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  • Keßler, Andreas
  • Mählmann, Thomas

Abstract

We use institutional trade and dealer quote data to estimate transaction costs in the over-the-counter leveraged loan market. In the time series, we find an asymmetric response of transaction costs to loan market returns: negative market returns increase costs much more than positive returns decrease them. In the cross-section, our results support the inventory holding costs and adverse selection paradigms of price formation. As expected for a market without the governance role of securities laws and any regulatory oversight, the level of informed trading is high. Finally, liquidity is marginally priced in secondary market loan spreads, as predicted by classic asset pricing theory.

Suggested Citation

  • Keßler, Andreas & Mählmann, Thomas, 2022. "Trading costs of private debt," Journal of Financial Markets, Elsevier, vol. 59(PB).
    • Handle: RePEc:eee:finmar:v:59:y:2022:i:pb:s1386418121000264
    DOI: 10.1016/j.finmar.2021.100644
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    More about this item

    Keywords

    Private markets; Leveraged loans; Trading costs; Institutional investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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