Clustered pricing in the corporate loan market: Theory and empirical evidence

Chaudhry, Sajid M., Bajoori, Elnaz and Nandeibam, Shasi (2018). Clustered pricing in the corporate loan market: Theory and empirical evidence. Journal of Economic Behavior and Organization ,

Abstract

Existing theories explaining security price clustering as well as clustering in the retail deposit and mortgage markets are incompatible with the clustering in the corporate loan market. We develop a new theoretical model that the attitude of the lender toward the uncertainty about the quality of the borrower leads to the clustering of spreads. Our empirical results support our theoretical model and we find that clustering increases with the degree of uncertainty between the lender and the borrower. In contrast, clustering is less likely when the uncertainty about the quality of the borrower has been reduced through repeated access and through prior interactions of the lender and the borrower.

Publication DOI: https://doi.org/10.1016/j.jebo.2017.12.019
Divisions: Aston Business School
Full Text Link: https://researc ... y-and-empiric-2
Related URLs: https://linking ... 167268117303694 (Publisher URL)
Published Online Date: 2018-01-06
Authors: Chaudhry, Sajid M. ( 0000-0001-8769-8920)
Bajoori, Elnaz
Nandeibam, Shasi

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