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The Dutch Grey Market

Author

Listed:
  • Christophe Spaenjers

    (Department of Economics - Tilburg University)

  • Luc Renneboog

    (Department of Finance - Tilburg University)

Abstract

When-issued trading concerns transactions in securities that have not yet been issued. This paper investigates the Dutch "grey market" for when-issued shares prior to stock splits, using a unique hand-collected data set. Market makers are more likely to set up a when-issued market when the underlying firm is larger, the relative trading volume of the stock is higher, and the stock return is less volatile. The when-issued securities trade at a small premium over the regular shares during the weeks prior to the stock split, but this when-issued premium disappears in the last days of trading.

Suggested Citation

  • Christophe Spaenjers & Luc Renneboog, 2011. "The Dutch Grey Market," Post-Print hal-00630379, HAL.
  • Handle: RePEc:hal:journl:hal-00630379
    DOI: 10.1007/s10645-010-9154-1
    Note: View the original document on HAL open archive server: https://hal-hec.archives-ouvertes.fr/hal-00630379
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Angel, James J, 1997. " Tick Size, Share Prices, and Stock Splits," Journal of Finance, American Finance Association, vol. 52(2), pages 655-681, June.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. 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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    16. 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.
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    More about this item

    Keywords

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

    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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