Information Production in the Market for Private Placements
Presentation
Overview
Overview
Description
Private debt and equity markets are an increasingly important, yet relatively opaque, part of the United States’ capital markets system. Of particular importance in this marketplace is the extent of information production by investors during the due diligence and monitoring process. We investigate this question by examining holdings and trades of insurance companies who are subject to uniquely onerous regulatory reporting requirements. We find that insurers with an existing private debt or equity relationship with a firm are significantly more likely to make a trade in that firm’s publicly traded equity, and when they do, the trade is significantly larger than other trades made by the insurer. In addition, trades associated with a private debt placement at the same insurer generate abnormal performance of around 1.5 basis points per day during the year following the trade (approximately 3.75% per year). Taken together, our results suggest that information production by insurers in private capital markets materially affects trading strategy and performance.
