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The market for new issues of municipal bonds: The roles of transparency and limited access to retail investors

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  • Schultz, Paul

Abstract

I examine how transparency and interdealer trading affects prices investors pay in municipal bond offerings. Real-time trade reporting for municipal bonds started January 31, 2005. The dispersion of purchase prices fell sharply at that time. There was little impact on average markups for most trades, but they increased for purchases of more than $100,000. Bonds often pass through a series of dealers before being placed with a buy-and-hold investor. As the interdealer trades progress, trade sizes decline and trade prices rise. Markups on investor purchases increase with the amount of interdealer trading before the trade.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jfinec:v:106:y:2012:i:3:p:492-512
    DOI: 10.1016/j.jfineco.2012.07.004
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    References listed on IDEAS

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    1. Darrell Duffie & Semyon Malamud & Gustavo Manso, 2009. "Information Percolation With Equilibrium Search Dynamics," Econometrica, Econometric Society, vol. 77(5), pages 1513-1574, September.
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    5. 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.
    6. Hendrik Bessembinder & William Maxwell, 2008. "Markets: Transparency and the Corporate Bond Market," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 217-234, Spring.
    7. Haoxiang Zhu, 2012. "Finding a Good Price in Opaque Over-the-Counter Markets," Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1255-1285.
    8. 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.
    9. Lawrence E. Harris & Michael S. Piwowar, 2006. "Secondary Trading Costs in the Municipal Bond Market," Journal of Finance, American Finance Association, vol. 61(3), pages 1361-1397, June.
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    Citations

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    Cited by:

    1. Dan Li & Norman Schürhoff, 2019. "Dealer Networks," Journal of Finance, American Finance Association, vol. 74(1), pages 91-144, February.
    2. Jean-Edouard Colliard & Thierry Foucault & Peter Hoffmann, 2018. "Inventory Management, Dealers' Connections, and Prices in OTC Markets," Working Papers hal-01933855, HAL.
    3. Cestau, Dario & Hollifield, Burton & Li, Dan & Schürhoff, Norman, 2018. "Municipal Bond Markets," CEPR Discussion Papers 13301, C.E.P.R. Discussion Papers.
    4. repec:eee:glofin:v:40:y:2019:i:c:p:48-64 is not listed on IDEAS
    5. repec:kap:rqfnac:v:52:y:2019:i:3:d:10.1007_s11156-018-0724-7 is not listed on IDEAS
    6. repec:eee:jfinec:v:130:y:2018:i:2:p:308-326 is not listed on IDEAS
    7. Friewald, Nils & Jankowitsch, Rainer & Subrahmanyam, Marti G., 2014. "To disclose or not to disclose: Transparency and liquidity in the structured product market," CFS Working Paper Series 461, Center for Financial Studies (CFS).
    8. repec:kap:jbuset:v:153:y:2018:i:2:d:10.1007_s10551-016-3355-8 is not listed on IDEAS
    9. repec:eee:jaecon:v:65:y:2018:i:1:p:109-128 is not listed on IDEAS

    More about this item

    Keywords

    Municipal bond; Dealer market; Transparency;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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