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Trading in the shadows

  • 1. Credit supply externalities of a secondary loan market We analyze the primary and secondary market for leveraged loans over the period from January 2010 to January 2020. Our findings indicate a trading channel of credit supply contraction. Nonbank lenders that are active loan traders decrease their credit supply relative to banks when the secondary market becomes cheap and expected profitability of loan trading increases. Direct evidence from collateralized loan obligations, the largest nonbank lenders, is consistent with the interpretation that credit is crowded out by nonbanks responding to profitable opportunities in the secondary loan market, rather than with a demand-based interpretation. The results suggest that the existence of a secondary loan market might have negative spillovers to the real economy, a possibility overlooked thus far. 2. Do investors care about climate change risk – even if nobody looks? Evidence from the private market This paper contributes to the discussion about the regulation of private markets1. Credit supply externalities of a secondary loan market We analyze the primary and secondary market for leveraged loans over the period from January 2010 to January 2020. Our findings indicate a trading channel of credit supply contraction. Nonbank lenders that are active loan traders decrease their credit supply relative to banks when the secondary market becomes cheap and expected profitability of loan trading increases. Direct evidence from collateralized loan obligations, the largest nonbank lenders, is consistent with the interpretation that credit is crowded out by nonbanks responding to profitable opportunities in the secondary loan market, rather than with a demand-based interpretation. The results suggest that the existence of a secondary loan market might have negative spillovers to the real economy, a possibility overlooked thus far. 2. Do investors care about climate change risk – even if nobody looks? Evidence from the private market This paper contributes to the discussion about the regulation of private markets by taking climate change into the equation. It aims at filtering out factors of public awareness and regulation to see how investors behave on private markets, where “nobody looks”. We analyze changes in leveraged loan index prices and trades that can be associated with changes in climate risk awareness during the Paris Agreement and the French Energy Transition Law in 2015. CLOs, the largest players on the leveraged loan market and barely regulated or publicly observed institutional investors, do care about climate risks – just not the way climate activists would hope for: They further invest in brown firms and even increase their inventory when the overall prices of these decline as a response to the Paris Agreement. The effect reverses in face of more concrete regulatory threats of the French Energy Transition Law. 3. Value and momentum in private debt: Trading strategies for leveraged loans This paper applies empirical asset pricing literature on the leveraged loan market by analyzing short-term (one-month) value and momentum strategies. We apply portfolio sorts on aggregate industry and country excess returns for four different panels in the US and Europe with almost seventy years of combined data. This novel approach of aggregating leveraged loans ensures tradability as investors can choose from available facilities within an industry or country portfolio. Sorting countries into terciles of HIGH, MEDIUM, and LOW according to value and momentum results in annualized credit excess returns of long HIGH-value portfolios from 548 bps to 1,040 bps; and long HIGH-momentum returns from 429 bps to 1,358 bps. Annualized Sharpe ratios span 0.93 to 1.45 and 1.11 to 1.64, respectively. These profits are neither compensation for default risk nor liquidity provision.show moreshow less

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Metadaten
Author:Hackenberg, Kathrin E.
URN:urn:nbn:de:bvb:824-opus4-7750
Subtitle (English):three essays on the secondary market for leveraged loans
Subtitle (German):Zusatztext und Beiträge in englischer Sprache zur kumulativen Dissertation
Advisor:Prof. Dr. Mählmann, Thomas, Prof. Dr. Ringlstetter, Max
Document Type:Doctoral thesis
Language of publication:English
Online publication date:2022/08/29
Date of first Publication:2022/08/29
Publishing Institution:Katholische Universität Eichstätt-Ingolstadt
Awarding Institution:Katholische Universität Eichstätt-Ingolstadt, Wirtschaftswissenschaftliche Fakultät
Date of final examination:2022/07/29
Release Date:2022/08/29
GND Keyword:Internationaler Kreditmarkt; Sekundärmarkt
Pagenumber:13 Seiten : Diagramme
Faculty:Wirtschaftswissenschaftliche Fakultät
JEL-Classification:G Financial Economics
License (German):License LogoKeine Lizenz - es gilt das deutsche Urheberrecht
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