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Publication year
Fire Sale Risk in the Leveraged Loan Market
Resource type
Authors/contributors
- Elkamhi, Redouane (Author)
- Nozawa, Yoshio (Author)
Title
Fire Sale Risk in the Leveraged Loan Market
Abstract
Using detailed loan holding data of Collateralized Loan Obligations (CLOs), we document empirical evidence for the fire sale of leveraged loans due to leverage constraints on CLOs. Constrained CLOs are forced to sell loans downgraded to CCC or below, and thus loans widely held by constrained CLOs experience temporary price depreciation. This instability is exacerbated by diversification requirements. As the CLO market grows, each CLO’s effort to diversify its portfolio leads to similarity in loan holdings among CLOs, and thus their leverage constraints simultaneously bind. CLOs’ overlapping loan holdings spread idiosyncratic shocks to large borrowers to the overall leveraged loan market.
Publication
Journal of Financial Economics
Volume
146
Issue
3
Pages
1120-1147
Date
2022-12-01
Journal Abbr
Journal of Financial Economics
Language
en
ISSN
0304-405X
Accessed
12/12/22, 12:26 PM
Library Catalog
ScienceDirect
Citation
Elkamhi, R., & Nozawa, Y. (2022). Fire Sale Risk in the Leveraged Loan Market. Journal of Financial Economics, 146, 1120–1147.
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