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The order flow of discount certificates and issuer pricing behavior

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  • Baule, Rainer
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    Abstract

    We analyze the order flow of discount certificates, its dependence on product age, and the implications for issuer pricing behavior. Based on a unique data set of exchange trades and issuer quotes, we find that for tax reasons investors prefer to buy products that mature in just over 1Â year from the date of purchase. Furthermore, they tend to sell products back preferably close to maturity. These patterns in the trade direction allow us to separate the issuer pricing behavior from (i) the life cycle and (ii) the order flow. We find evidence that 7 out of 11 issuers anticipate the order flow and price in an additional margin in phases of positive expected net sales.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 11 (November)
    Pages: 3120-3133

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:3120-3133

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    Web page: http://www.elsevier.com/locate/jbf

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    Keywords: Discount certificate Life cycle Order flow Structured financial product;

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    Cited by:
    1. Stephan Meyer & Sebastian Schroff & Christof Weinhardt, 2014. "(Un)skilled leveraged trading of retail investors," Financial Markets and Portfolio Management, Springer, vol. 28(2), pages 111-138, May.

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