Dealer Intermediation and Price Behavior in the Aftermarket for New Bond Issues
AbstractWe study trading and prices in newly issued municipal bonds. Municipals, which trade in decentralized, broker-dealer markets, are underpriced when issued, but unlike equities the average price rises slowly over a period of several days. We document high levels of price dispersion in newly issued bonds, and show that the average drift upward in price is because of changes in the mix of trades over time. While large trades occur at prices close to the reoffering yield, and close to each other, small trades occur at a wide range of prices almost simultaneously. Some small investors appear to be informed about the status of the issue, and trade on attractive terms. Others appear uninformed, and broker/dealers are able to discriminate between them.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2005-E56.
Date of creation:
Date of revision:
Contact details of provider:
Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
Other versions of this item:
- Green, Richard C. & Hollifield, Burton & Schurhoff, Norman, 2007. "Dealer intermediation and price behavior in the aftermarket for new bond issues," Journal of Financial Economics, Elsevier, vol. 86(3), pages 643-682, December.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
- Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
- Ricardo Lagos & Guillaume Rocheteau, 2008.
"Liquidity in asset markets with search frictions,"
408, Federal Reserve Bank of Minneapolis.
- McConnell, John J. & Saretto, Alessio, 2010. "Auction failures and the market for auction rate securities," Journal of Financial Economics, Elsevier, vol. 97(3), pages 451-469, September.
- Bruce I. Carlin & Simon Gervais, 2009. "Legal Protection in Retail Financial Markets," NBER Working Papers 14972, National Bureau of Economic Research, Inc.
- Konstantin Milbradt & Zhiguo He, 2012. "Endogenous liquidity and defaultable bonds," 2012 Meeting Papers 86, Society for Economic Dynamics.
- Tarun Ramadorai, 2008. "What determines transaction costs in foreign exchange markets?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 14-25.
- Francis A. Longstaff, 2009. "Municipal Debt and Marginal Tax Rates: Is there a Tax Premium in Asset Prices?," NBER Working Papers 14687, National Bureau of Economic Research, Inc.
- Ramadorai, Tarun, 2006. "Persistence, Performance and Prices in Foreign Exchange Markets," CEPR Discussion Papers 5861, C.E.P.R. Discussion Papers.
- Biais, Bruno & Green, Richard, 2007.
"The Microstructure of the Bond Market in the 20th Century,"
IDEI Working Papers
482, Institut d'Économie Industrielle (IDEI), Toulouse.
- Bruno Biais & Richard C. Green, . "The Microstructure of the Bond Market in the 20th Century," GSIA Working Papers 2005-E57, Carnegie Mellon University, Tepper School of Business.
- Ellul, Andrew & Jotikasthira, Chotibhak & Lundblad, Christian T., 2011. "Regulatory pressure and fire sales in the corporate bond market," Journal of Financial Economics, Elsevier, vol. 101(3), pages 596-620, September.
- 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.
- Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
- Andrew Ang & Vineer Bhansali & Yuhang Xing, 2010.
"Taxes on Tax-Exempt Bonds,"
Journal of Finance,
American Finance Association, vol. 65(2), pages 565-601, 04.
- Ronen, Tavy & Zhou, Xing, 2013. "Trade and information in the corporate bond market," Journal of Financial Markets, Elsevier, vol. 16(1), pages 61-103.
- Song Han & Dan Li, 2010. "The fragility of discretionary liquidity provision - lessons from the collapse of the auction rate securities market," Finance and Economics Discussion Series 2010-50, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Song Han & Dan Li, 2011. "The Fragility of Discretionary Liquidity Provision: Lessons from the Collapse of the Auction Rate Securities Market," Working Papers 052011, Hong Kong Institute for Monetary Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Steve Spear).
If references are entirely missing, you can add them using this form.