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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.

Suggested Citation

  • Richard C. Green, 2007. "Presidential Address: Issuers, Underwriter Syndicates, and Aftermarket Transparency," Journal of Finance, American Finance Association, vol. 62(4), pages 1529-1550, August.
  • Handle: RePEc:bla:jfinan:v:62:y:2007:i:4:p:1529-1550
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    Citations

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    Cited by:

    1. 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.
    2. Ronen, Tavy & Zhou, Xing, 2013. "Trade and information in the corporate bond market," Journal of Financial Markets, Elsevier, vol. 16(1), pages 61-103.
    3. Bruce I. Carlin & Simon Gervais, 2009. "Legal Protection in Retail Financial Markets," NBER Working Papers 14972, National Bureau of Economic Research, Inc.
    4. Sibylle H. Lehmann, 2014. "Taking firms to the stock market: IPOs and the importance of large banks in imperial Germany, 1896–1913," Economic History Review, Economic History Society, vol. 67(1), pages 92-122, February.
    5. Marco Di Maggio & Amir Kermani & Zhaogang Song, 2016. "The Value of Trading Relationships in Turbulent Times," NBER Working Papers 22332, National Bureau of Economic Research, Inc.
    6. 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.
    7. repec:eee:jetheo:v:174:y:2018:i:c:p:16-56 is not listed on IDEAS
    8. Carlin, Bruce I., 2009. "Strategic price complexity in retail financial markets," Journal of Financial Economics, Elsevier, vol. 91(3), pages 278-287, March.
    9. repec:eee:empfin:v:44:y:2017:i:c:p:190-208 is not listed on IDEAS
    10. Darrell Duffie & Bruno Strulovici, 2012. "Capital Mobility and Asset Pricing," Econometrica, Econometric Society, vol. 80(6), pages 2469-2509, November.
    11. 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.
    12. repec:eee:jfinec:v:124:y:2017:i:2:p:266-284 is not listed on IDEAS
    13. 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.

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