FIN-04-017
The Informational Efficiency of the Equity Market As Compared to the Syndicated Bank Loan MarketLinda Allen and Aron A. Gottesman September 2004 |
|
| FIN-04-017 |
|
| The Informational Efficiency of the Equity Market As Compared to the Syndicated Bank Loan Market |
| Linda Allen and Aron A. Gottesman September 2004 |
| Abstract | |
| To our knowledge, this is the first paper to examine the informational efficiency of the equity market as compared to the syndicated bank loan market. The loan market is a private market comprised of financial institutions with access to private information. We test whether this is reflected in informationally efficient price formation in the loan market vis a vis the equity markets, and reject this private information hypothesis. We find support for a liquidity hypothesis, suggesting that equity markets lead loan markets, despite bank lenders' access to private information, because of greater liquidity in equity markets. Only when equity markets are relatively illiquid do we find evidence supporting the private information hypothesis. Finally, we find evidence of abnormal returns if portfolios are constructed using lagged equity returns to designate investments in the syndicated bank loan market. | |
| |
| Linda Allen | |
| Institution: Stern School of Business, New York University
Email: lallen@stern.nyu.edu Home Page: http://www.stern.nyu.edu/~lallen |
|
| |
| Aron A. Gottesman | |
| Institution: Lubin School of Business, Pace University
Email: agottesman@pace.edu |
|
| |
 |
|
|
The 2004 Department of Finance Working Paper Series has been generously sponsored by  |
To download a copy of this paper click