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The Pricing of When-Issued Securities

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  • Lamoureux, Christopher G
  • Wansley, James W

Abstract

The observed pricing of when-issued securities would seem to violate the laws of one price in financial economics. Generally, when-issued shares sell at a premium over the original shares during the short time when both are traded. This paper examines whether this observed premium could be due to a nonsynchronous trading problem, to the intensity of trading, to the exchange on which the shares are traded, to whether the shares are traded pre- or post-negotiable commissions, or to the nature of the demand for when-issued relative to the price setting of the specialist. Results indicate that most orders for when-issued securities are buys, that these orders typically take place at the specialist's ask price, and that accounting for this trading mechanism explains the positive premium on when-issued securities. Copyright 1989 by MIT Press.

Suggested Citation

  • Lamoureux, Christopher G & Wansley, James W, 1989. "The Pricing of When-Issued Securities," The Financial Review, Eastern Finance Association, vol. 24(2), pages 183-198, May.
    • Handle: RePEc:bla:finrev:v:24:y:1989:i:2:p:183-98
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    Cited by:

    1. Luc Renneboog & Christophe Spaenjers, 2011. "The Dutch Grey Market," De Economist, Springer, vol. 159(1), pages 25-40, March.

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