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Private information disclosure in the secondary loan market and its impact on equity market trading costs

Author

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  • Saunders, Anthony
  • Shao, Pei
  • Xiao, Yuchao

Abstract

When a firm's loans are first traded in the secondary market, private information about the firm is disclosed to a select group of large investors, so-called qualified institutional buyers (QIBs). We document a significant information effect that benefits these buyers in the firm's market for equity, in particular, a significant impact on equity market investors and the firm's stock bid-ask spreads, which benefits informed QIBs relative to retail investors. This informational benefit raises important regulatory issues related to disclosure and SEC regulations.

Suggested Citation

  • Saunders, Anthony & Shao, Pei & Xiao, Yuchao, 2024. "Private information disclosure in the secondary loan market and its impact on equity market trading costs," Journal of Financial Markets, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:finmar:v:67:y:2024:i:c:s1386418123000654
    DOI: 10.1016/j.finmar.2023.100867
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    Keywords

    Secondary loan market; Stock bid-ask spread; Institutional investors; Information asymmetry; Insider trading;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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