Hossein Asgharian

Professor

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

Författare

Hossein Asgharian
Dominice Goodwin
Lu Liu

Summary, in English

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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