Portfolio performance manipulation in collateralized loan obligations

Loumioti, M and Vasvari, F (2019) Portfolio performance manipulation in collateralized loan obligations. Journal of Accounting and Economics, 67 (2-3). pp. 438-462. ISSN 0165-4101 OPEN ACCESS


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
Additional Information:

© 2019 Elsevier. This manuscript version is made available under the Creative Commons CC-BY-NC-ND 4.0 license

Date Deposited: 19 Dec 2018 19:56
Date of first compliant deposit: 26 Sep 2018
Subjects: Portfolio investment
Last Modified: 23 May 2024 00:46
URI: https://lbsresearch.london.edu/id/eprint/1014

Export and Share


Accepted Version - Text
  • Available under License Creative Commons: Attribution-No Derivative Works 4.0


View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item