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

52 Pages Posted: 2 Mar 2015

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Daniel Schmidt

HEC Paris - Finance Department

Date Written: March 2015

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.

Keywords: Corporate Bonds, Information Asymmetry, Loan Trading

JEL Classification: G14, G21, G22, G23, G24

Suggested Citation

Massa, Massimo and Schmidt, Daniel, Insider Trading in the Bond Market: Evidence from Loan Sale Events (March 2015). CEPR Discussion Paper No. DP10446, Available at SSRN: https://ssrn.com/abstract=2572424

Massimo Massa (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Daniel Schmidt

HEC Paris - Finance Department ( email )

France
0652678597 (Phone)

HOME PAGE: http://daniel-schmidt.eu

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