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Lender-Borrower Stock Return Dependencies in Credit Networks: Evidence from Syndicated Loan Deals

Asgharian, Hossein LU ; Goodwin, Dominice LU and Liu, Lu LU (2024) International Risk Management Conference 2024,
Abstract
We study the impact of credit networks on the interconnectedness between lenders' and borrowers' stock returns using syndicated loan data. We correct for biases from confounding factors and find significant stock return dependencies between small banks and large borrower firms with high default risk. Our analysis shows that portfolios of lender stocks, sorted based on signals from borrowers' returns, yield positive risk-adjusted investment returns. Conversely, sorting borrower stocks based on lenders' returns does not generate profitable returns. Overall, our results suggest that return dependency may primarily be driven by banks’ exposure to the borrowers.
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author
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organization
publishing date
type
Contribution to conference
publication status
unpublished
subject
conference name
International Risk Management Conference 2024,
conference location
Milan, Italy
conference dates
2024-06-24 - 2024-06-25
language
English
LU publication?
yes
id
9d7ac81e-4b4e-4991-aaed-a6b7eecd14e0
date added to LUP
2025-03-23 10:19:29
date last changed
2025-04-30 13:35:55
@misc{9d7ac81e-4b4e-4991-aaed-a6b7eecd14e0,
  abstract     = {{We study the impact of credit networks on the interconnectedness between lenders' and borrowers' stock returns using syndicated loan data. We correct for biases from confounding factors and find significant stock return dependencies between small banks and large borrower firms with high default risk. Our analysis shows that portfolios of lender stocks, sorted based on signals from borrowers' returns, yield positive risk-adjusted investment returns. Conversely, sorting borrower stocks based on lenders' returns does not generate profitable returns. Overall, our results suggest that return dependency may primarily be driven by banks’ exposure to the borrowers.}},
  author       = {{Asgharian, Hossein and Goodwin, Dominice and Liu, Lu}},
  language     = {{eng}},
  title        = {{Lender-Borrower Stock Return Dependencies in Credit Networks: Evidence from Syndicated Loan Deals}},
  year         = {{2024}},
}