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Investor Diversity and Liquidity in The Secondary Loan Market

Author

Listed:
  • João A. C. Santos

    (Nova School of Business and Economics)

  • Pei Shao

    (University of Lethbridge)

Abstract

We find strong evidence that investor diversity is beneficial to loan liquidity: More diverse syndicates, as measured by the number of investor-types or the concentration of loan shares by investor-type, hold loans that have lower quoted bid-ask spreads in the secondary market. These results are robust, and do not appear to be driven by investors’ borrower/loan selection. Further, they are not driven by the presence of any particular type of investors. Our findings are consistent with Goldstein and Yang (J Financ 70:1723–1765 2015) insight that there is a strategic complementarity between different groups in trading on their information and producing information.

Suggested Citation

  • João A. C. Santos & Pei Shao, 2023. "Investor Diversity and Liquidity in The Secondary Loan Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(3), pages 249-272, June.
    • Handle: RePEc:kap:jfsres:v:63:y:2023:i:3:d:10.1007_s10693-022-00377-0
    DOI: 10.1007/s10693-022-00377-0
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    More about this item

    Keywords

    Loan syndicate; Investor diversity; Loan market liquidity; Loan bid-ask spreads; Informed investors;
    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

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