Trading costs of private debt

Andreas Keßler and Thomas Mählmann

Journal of Financial Markets, 2022, vol. 59, issue PB

Abstract: We use institutional trade and dealer quote data to estimate transaction costs in the over-the-counter leveraged loan market. In the time series, we find an asymmetric response of transaction costs to loan market returns: negative market returns increase costs much more than positive returns decrease them. In the cross-section, our results support the inventory holding costs and adverse selection paradigms of price formation. As expected for a market without the governance role of securities laws and any regulatory oversight, the level of informed trading is high. Finally, liquidity is marginally priced in secondary market loan spreads, as predicted by classic asset pricing theory.

Keywords: Private markets; Leveraged loans; Trading costs; Institutional investors (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:59:y:2022:i:pb:s1386418121000264

DOI: 10.1016/j.finmar.2021.100644

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