Clustered Pricing in the Corporate Loan Market:

Theory and Empirical Evidence

Sajid Mukhtar Chaudhry, Elnaz Bajoori, Shasikanta Nandeibam

Research output: Contribution to journal › Article

7 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)275-296
Number of pages22
JournalJournal of Economic Behavior and Organization
Volume157
Early online date6 Jan 2018
DOIs
Publication statusPublished - 1 Jan 2019

Fingerprint

Clustering
Loans
Pricing
Empirical evidence
Uncertainty
Mortgage market
Retail
Price clustering
Interaction
Deposits
Empirical results
Security price

Keywords

  • corporate loans
  • interest rate clustering,
  • information asymmetry
  • uncertainty

Cite this

Clustered Pricing in the Corporate Loan Market: Theory and Empirical Evidence. / Chaudhry, Sajid Mukhtar ; Bajoori, Elnaz; Nandeibam, Shasikanta.

In: Journal of Economic Behavior and Organization, Vol. 157, 01.01.2019, p. 275-296.

Research output: Contribution to journal › Article

Chaudhry, SM, Bajoori, E & Nandeibam, S 2019, 'Clustered Pricing in the Corporate Loan Market: Theory and Empirical Evidence', Journal of Economic Behavior and Organization, vol. 157, pp. 275-296. https://doi.org/10.1016/j.jebo.2017.12.019
Chaudhry SM, Bajoori E, Nandeibam S. Clustered Pricing in the Corporate Loan Market: Theory and Empirical Evidence. Journal of Economic Behavior and Organization. 2019 Jan 1;157:275-296. https://doi.org/10.1016/j.jebo.2017.12.019
Chaudhry, Sajid Mukhtar ; Bajoori, Elnaz ; Nandeibam, Shasikanta. / Clustered Pricing in the Corporate Loan Market: Theory and Empirical Evidence. In: Journal of Economic Behavior and Organization. 2019 ; Vol. 157. pp. 275-296.
@article{0377bcf999694ed4b2bf59721bedf246,
title = "Clustered Pricing in the Corporate Loan Market:: Theory and Empirical Evidence",
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.",
keywords = "corporate loans, interest rate clustering,, information asymmetry, uncertainty",
author = "Chaudhry, {Sajid Mukhtar} and Elnaz Bajoori and Shasikanta Nandeibam",
year = "2019",
month = "1",
day = "1",
doi = "10.1016/j.jebo.2017.12.019",
language = "English",
volume = "157",
pages = "275--296",
journal = "Journal of Economic Behavior and Organization",
issn = "0167-2681",
publisher = "Elsevier",

}

TY - JOUR

T1 - Clustered Pricing in the Corporate Loan Market:

T2 - Theory and Empirical Evidence

AU - Chaudhry, Sajid Mukhtar

AU - Bajoori, Elnaz

AU - Nandeibam, Shasikanta

PY - 2019/1/1

Y1 - 2019/1/1

N2 - 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.

AB - 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.

KW - corporate loans

KW - interest rate clustering,

KW - information asymmetry

KW - uncertainty

U2 - 10.1016/j.jebo.2017.12.019

DO - 10.1016/j.jebo.2017.12.019

M3 - Article

VL - 157

SP - 275

EP - 296

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

SN - 0167-2681

ER -

Access to Document