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The Dutch Grey Market


  • Luc Renneboog


  • Christophe Spaenjers



When-issued trading concerns transactions in securities that have not yet been issued. This type of trade often takes place in a so-called ‘grey market’, in which all contracts are conditional on the issuance of the security. In this paper, we investigate the Dutch grey market for when-issued shares prior to stock splits and IPOs, using a unique, handcollected dataset. Stock splits are more likely to be preceded by when-issued trading when the underlying firm is larger, the relative trading volume of the stock is higher, and the stock return is less volatile. This implies that market makers are more likely to set up a when-issued market after a stock split announcement when the number of expected transactions is large and the expected costs are low. On the basis of when-issued and regular share closing prices, we calculate premiums of 0.50% to 1.50% on nearly all of the 50 trading days leading up to the stock split. When corrected for the time value of money, these when-issued securities trade at a small but economically significant premium of on average about 0.60% over the regular shares during a limited period before the effective date of the stock split. However, this when-issued premium disappears in the last days prior to the stock split. In the case of when-issued trading in the run-up to an IPO, we find that the prices paid in the grey market are in line with the first day closing prices. This confirms the findings of Löffler, Panther and Theissen (2005) that pre-IPO prices are highly informative.
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Suggested Citation

  • Luc Renneboog & Christophe Spaenjers, 2011. "The Dutch Grey Market," De Economist, Springer, vol. 159(1), pages 25-40, March.
  • Handle: RePEc:kap:decono:v:159:y:2011:i:1:p:25-40
    DOI: 10.1007/s10645-010-9154-1

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    References listed on IDEAS

    1. Aussenegg, Wolfgang & Pichler, Pegaret & Stomper, Alex, 2006. "IPO Pricing with Bookbuilding and a When-Issued Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(04), pages 829-862, December.
    2. Lakonishok, Josef & Lev, Baruch, 1987. " Stock Splits and Stock Dividends: Why, Who, and When," Journal of Finance, American Finance Association, vol. 42(4), pages 913-932, September.
    3. Ezzell, John R. & Miles, James A. & Mulherin, J. Harold, 2003. "Is There Really a When-Issued Premium?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(03), pages 611-634, September.
    4. Angel, James J, 1997. " Tick Size, Share Prices, and Stock Splits," Journal of Finance, American Finance Association, vol. 52(2), pages 655-681, June.
    5. Loffler, Gunter & Panther, Patrick F. & Theissen, Erik, 2005. "Who knows what when? The information content of pre-IPO market prices," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 466-484, October.
    6. James J. Angel & Raymond M. Brooks & Prem G. Mathew, 2004. "When-Issued Shares, Small Trades, And The Variance Of Returns Around Stock Splits," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(3), pages 415-433.
    7. Nayar, Nandkumar & Rozeff, Michael S., 2001. "Record Date, When-Issued, and Ex-Date Effects in Stock Splits," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(01), pages 119-139, March.
    8. Hanley, Kathleen Weiss, 1993. "The underpricing of initial public offerings and the partial adjustment phenomenon," Journal of Financial Economics, Elsevier, vol. 34(2), pages 231-250, October.
    9. Francesca Cornelli & David Goldreich & Alexander Ljungqvist, 2006. "Investor Sentiment and Pre-IPO Markets," Journal of Finance, American Finance Association, vol. 61(3), pages 1187-1216, June.
    10. 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.
    11. Choi, Dosoung & Strong, Robert A, 1983. " The Pricing of When-Issued Common Stock: A Note," Journal of Finance, American Finance Association, vol. 38(4), pages 1293-1298, September.
    12. Grinblatt, Mark S. & Masulis, Ronald W. & Titman, Sheridan, 1984. "The valuation effects of stock splits and stock dividends," Journal of Financial Economics, Elsevier, vol. 13(4), pages 461-490, December.
    13. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361.
    14. Dorn, Daniel, 2009. "Does Sentiment Drive the Retail Demand for IPOs?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(01), pages 85-108, February.
    15. Lamoureux, Christopher G & Poon, Percy, 1987. " The Market Reaction to Stock Splits," Journal of Finance, American Finance Association, vol. 42(5), pages 1347-1370, December.
    16. Brooks, Raymond M. & Chiou, Shur-Nuaan, 1995. "A Bias in Closing Prices: The Case of the When-Issued Pricing Anomaly," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(03), pages 441-454, September.
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    More about this item


    Capital markets; Law of one price; Stock splits; When-issued trading; G1; G2;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


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