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Dealer Intermediation and Price Behavior in the Aftermarket for New Bond Issues


  • Richard Green
  • Burton Hollifield
  • Norman Schurhoff


We study trading and prices in newly issued municipal bonds. Municipals, which trade in decentralized, broker-dealer markets, are underpriced when issued, but unlike equities the average price rises slowly over a period of several days. We document high levels of price dispersion in newly issued bonds, and show that the average drift upward in price is because of changes in the mix of trades over time. While large trades occur at prices close to the reoffering yield, and close to each other, small trades occur at a wide range of prices almost simultaneously. Some small investors appear to be informed about the status of the issue, and trade on attractive terms. Others appear uninformed, and broker/dealers are able to discriminate between them.

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  • Richard Green & Burton Hollifield & Norman Schurhoff, "undated". "Dealer Intermediation and Price Behavior in the Aftermarket for New Bond Issues," GSIA Working Papers 2005-E56, Carnegie Mellon University, Tepper School of Business.
  • Handle: RePEc:cmu:gsiawp:277024966

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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Richard C. Green & Burton Hollifield & Norman Schurhoff, "undated". "Financial Intermediation and the Costs of Trading in an Opaque Market," GSIA Working Papers 2004-11, Carnegie Mellon University, Tepper School of Business.
    3. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    4. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
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