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Underpricing in the euro area corporate bond market: New evidence from post-crisis regulation and quantitative easing

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  • Rischen, Tobias
  • Theissen, Erik

Abstract

We conduct the most extensive study of underpricing in the euro area bond market so far and find strong evidence of underpricing. In cross-sectional regressions we find patterns that are consistent with bookbuilding-based theories of underpricing and inconsistent with liquidity-based explanations. The underpricing has increased considerably during the financial crisis and has remained at an elevated level since. We also show that secondary market liquidity in the euro area bond market is significantly lower in the post-crisis period than pre-crisis. These results are consistent with recent US evidence and may represent unintended side effects of new regulation enacted in the wake of the financial crisis, such as Basel III and the Volcker Rule. Furthermore, our evidence suggests that the ECB's asset purchase programs have led to a decrease in underpricing.

Suggested Citation

  • Rischen, Tobias & Theissen, Erik, 2018. "Underpricing in the euro area corporate bond market: New evidence from post-crisis regulation and quantitative easing," CFR Working Papers 18-03, University of Cologne, Centre for Financial Research (CFR).
    • Handle: RePEc:zbw:cfrwps:1803
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    References listed on IDEAS

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    Cited by:

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    4. Jagannathan, Murali & Jiao, Wei & Wermers, Russ, 2020. "International characteristic-based asset pricing," CFR Working Papers 20-13, University of Cologne, Centre for Financial Research (CFR).
    5. Andrew Y. Chen & Tom Zimmermann, 2022. "Open Source Cross-Sectional Asset Pricing," Critical Finance Review, now publishers, vol. 11(2), pages 207-264, May.
    6. Betz, Frank & De Santis, Roberto A., 2019. "ECB corporate QE and the loan supply to bank-dependent firms," Working Paper Series 2314, European Central Bank.
    7. Andres, Christian & Bazhutov, Dmitry & Cumming, Douglas J. & Limbach, Peter, 2021. "Does Speculative News Hurt Productivity? Evidence from Takeover Rumors," CFR Working Papers 21-02, University of Cologne, Centre for Financial Research (CFR), revised 2021.
    8. Frank Betz & Roberto A. De Santis, 2022. "ECB Corporate QE and the Loan Supply to Bank-Dependent Firms," International Journal of Central Banking, International Journal of Central Banking, vol. 18(2), pages 107-148, June.

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    More about this item

    Keywords

    Underpricing; Bond Markets; Primary Market; Post-Crisis Regulation; ECB; Unconventional Monetary Policy; Quantitative Easing; Asset Purchase Programs;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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