David Xiaoyu Xu
Portfolio Dynamics and the Supply of Safe Securities [Internet Appendix]
QCGBF Young Economist Prize, Finalist
FMCG Best Paper Award in Banking/Financial Institution
The size of safe tranches (e.g., AAA-rated) backed by risky loans is constrained by potential loan quality deterioration in future years. A "self-healing" mechanism whereby asset managers pre-commit to replacing deteriorated loans in the underlying portfolio relaxes the binding constraint. This novel mechanism is a driving force behind the equilibrium in the securitization of corporate loans.
What Do Lead Banks Learn from Leveraged Loan Investors? (with Max Bruche and Ralf Meisenzahl)
Nowadays it's standard practice that lead banks use bookbuilding to discover investor demand and to adjust loan spreads in the syndication process. We find these pricing adjustments highly informative about future loan performance, which suggests nonbank investors have private information about borrower credit quality that is not reflected in bank-proposed loan terms.
Our observation on the 2014 Millennium Health Deal , where the borrower's fraud led to investor lawsuits against the lead bank and a 2023 federal court ruling that "leveraged loans are not securities".
Information Acquisition by Mutual Fund Investors: Evidence from Stock Trading Suspensions (with Clemens Sialm)
Mutual funds increasingly provide investors with access to illiquid assets such as corporate debt, PE, and real estate. We show the liquidity created by these funds' demandable shares motivates investors to acquire information on illiquid assets in fund portfolios. This channel generates informative quantity changes ("flows") before the information incorporates into asset prices.
Human Capital and Local Credit Supply: Evidence from the Mortgage Industry (with Ruidi Huang, Erik Mayer, and Sheridan Titman)
Loan officers physically located nearby remain important for local credit supply, even in the 2020s. However, the supply of local loan officers is largely unresponsive to local credit demand shocks. Tracking 350,000 loan officers, we find this inelasticity, stemming from information frictions that geographically segment labor markets, affects the supply of mortgage credit across U.S. counties.
The Geography of Information Acquisition (with Honghui Chen, Yuanyu Qu, Tao Shen, and Qinghai Wang), Journal of Financial and Quantitative Analysis, 2022
A setting where investment professionals' acquisition of private information is observable. We use this setting to examine how they react to exogenous shocks to the cost of acquiring information.
Subsumes my second-year paper, previously circulated as:
Costly Information Acquisition and Investment Decisions: Quasi-Experimental Evidence