Equity Price Discovery with Informed Private Debt

摘要: Equity markets fail to account for value-relevant non-public information enjoyed by syndicated loan participants and reflected in publicly-posted prices. A long-short strategy that buys (sells) the equities of firms whose loans have recently appreciated (depreciated) earns large risk-adjusted returns, suggesting a surprising economically important level segmentation across same firm's capital structure. The lag captured trading returns is not affected drivers firm-specific attention, including publication Wall Street Journal. Instead, are eliminated among held mutual funds also trade loans.