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

Author(s): Massimo Massa and Daniel Schmidt

Publication Date: March 2015

Keyword(s): Corporate Bonds, Information Asymmetry and Loan Trading

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Massa, M and Schmidt, D. 2015. 'Insider Trading in the Bond Market: Evidence from Loan Sale Events'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10446