Date of Award

8-16-2024

Document Type

Open Access Dissertation

Department

Moore School of Business

First Advisor

Donghang Zhang

Second Advisor

Greg Niehaus

Abstract

In the first essay, I examine the trading relationship between the manager of a collateralized loan obligation (CLO) deal and the borrowers and/or lenders of the underlying portfolio of the CLO deal. I investigate how these relationships affect the structure and pricing of CLO deals. I find that a stronger relationship between a CLO manager and either borrowers or lenders of loans in the underlying portfolio leads to a smaller equity tranche in the CLO deal and a lower yield spread of the AAA tranche, on average. These results suggest that the CLO manager uses private information from trading relationships to construct a better-quality initial loan portfolio and to implement more efficient follow-on management of the underlying portfolio. These two features reduce the costs of debt financing of a CLO deal and improve the implied yield spread to equity holders.

In the second essay, We study the performance of rated debt tranches of CLOs, which we refer to as CLO bonds. Consistent with CLO bonds having greater systematic risk on average than comparably rated corporate bonds, we find that CLO bonds provide higher yields than corporate bonds, on average, when issued in the primary market. On the secondary market, CLO bonds generate significant positive abnormal returns. After controlling for the usual risk factors, alpha ranges from 0.22% per quarter for portfolios of CLO bonds rated A and above to 0.84% per quarter for portfolios of CLO bonds rated BBB and below.

In the third essay, we study the systemic risks of financial institutions in response to monetary policy shocks. By employing new measures of monetary policy shocks that identify unconventional measures implemented after the Global Financial Crisis, we find that the systemic risks of insurance companies are more exposed to the forward guidance factor than banks. Contrary to general beliefs, banks are more exposed to the LSAP factor. The normalized systemic risk exposures are concentrated in larger institutions and during the crisis periods. We explore potential channels for these results and discuss their policy implications.

Rights

© 2024, Xinxin Zhang

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