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Presidential Address: Issuers, Underwriter Syndicates, and Aftermarket Transparency

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  • RICHARD C. GREEN

Abstract

I model strategic interaction among issuers, underwriters, retail investors, and institutional investors when the secondary market has limited price transparency. Search costs for retail investors lead to price dispersion in the secondary market, while the price for institutional investors is infinitely elastic. Because retail distribution capacity is assumed to be limited for each underwriter-dealer, Bertrand competition breaks down in the primary market and new issues are underpriced in equilibrium. Syndicates emerge in which underwriters bid symmetrically, with quantities allocated internally to efficiently utilize retail distribution capacity. Copyright 2007 by The American Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2007.01250.x
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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 62 (2007)
Issue (Month): 4 (08)
Pages: 1529-1550

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Handle: RePEc:bla:jfinan:v:62:y:2007:i:4:p:1529-1550

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Cited by:
  1. Schultz, Paul, 2012. "The market for new issues of municipal bonds: The roles of transparency and limited access to retail investors," Journal of Financial Economics, Elsevier, vol. 106(3), pages 492-512.
  2. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
  3. Ronen, Tavy & Zhou, Xing, 2013. "Trade and information in the corporate bond market," Journal of Financial Markets, Elsevier, vol. 16(1), pages 61-103.
  4. Carol Osler & Thang Nguyen & Tanseli Savaser, 2011. "Asymmetric Information and the Foreign-Exchange Trades of Global Custody Banks," Department of Economics Working Papers 2011-09, Department of Economics, Williams College.
  5. Bruno Strulovici & Darrell Duffie, 2009. "Capital Mobility and Asset Pricing," 2009 Meeting Papers 87, Society for Economic Dynamics.
  6. Jankowitsch, Rainer & Nashikkar, Amrut & Subrahmanyam, Marti G., 2011. "Price dispersion in OTC markets: A new measure of liquidity," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 343-357, February.
  7. Cestau, Dario & Green, Richard C. & Schürhoff, Norman, 2013. "Tax-subsidized underpricing: The market for Build America Bonds," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 593-608.
  8. Bruce I. Carlin & Simon Gervais, 2009. "Legal Protection in Retail Financial Markets," NBER Working Papers 14972, National Bureau of Economic Research, Inc.

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