Portfolio performance manipulation in collateralized loan obligations

Loumioti, M and Vasvari, F (2018) Portfolio performance manipulation in collateralized loan obligations. Journal of Accounting and Economics. ISSN 0165-4101 (In Press)

Abstract

We examine the discretionary activities that CLO managers engage in to pass monthly overcollateralization (OC) tests. These tests require a CLO’s loan portfolio value, scaled by the CLO notes’ principal balance, to be above a certain threshold. Using CLOs’ granular disclosures, we develop model-free estimates for discretionary loan fair valuation and transaction-based proxies for strategic loan trading. We find a positive association between these discretionary activities and the probability of avoiding an OC test violation. This association varies predictably with junior noteholders’ influence and CLO market conditions. Strategic trading—but not discretionary fair valuation—relates to worse future CLO performance.

More Details

Item Type: Article
Subject Areas: Accounting
Subjects: P > Portfolio investment
S > Securities
Date Deposited: 19 Dec 2018 19:56
Last Modified: 18 Jul 2019 17:53
URI: http://lbsresearch.london.edu/id/eprint/1014
More

Export and Share


Download

Accepted Version - Text
  • Restricted to Repository staff only
  • Available under License Creative Commons: Attribution-No Derivative Works 4.0

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item