Active Loan Trading
Journal article, Peer reviewed
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- Scientific articles 
Original versionJournal of Financial Intermediation, 2021, Volume 46, April, 100868 10.1016/j.jfi.2020.100868
Using a novel dataset of leveraged loan trades executed by managers of collateralized loan obligations (CLOs), we document the importance of “active loan trades” – trades executed at a manager’s discretion. More active trading increases the returns to CLO equity investors, lowers collateral portfolio default rates, and increases the manager’s chances of closing a new deal. Examining the observed loan trades, we find that more active CLOs trade at better prices than less active CLOs, selling leveraged loans earlier and before they get downgraded. Our findings suggest that more active CLOs are better at anticipating deteriorations in loan credit quality.