Dealer Intermediation and Price Behavior in the Aftermarket for New Bond Issues PDF Download
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Author: Richard C. Green
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
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 close to the reoffering price, 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 often buy at prices as much as five percent above the reoffering price, at which informed traders buy. We estimate a mixed-distribution model that highlights ex-ante characteristics that discriminate between these types of investors, and quantifies the losses uninformed traders or issuers give up to broker dealers.
Author: Richard C. Green
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
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 close to the reoffering price, 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 often buy at prices as much as five percent above the reoffering price, at which informed traders buy. We estimate a mixed-distribution model that highlights ex-ante characteristics that discriminate between these types of investors, and quantifies the losses uninformed traders or issuers give up to broker dealers.
Author: Michael A. Goldstein
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
This study examines dealer behavior and trading activity for a sample of 3,181 newly issued corporate bonds, focusing on underpricing at issuance and subsequent price dispersion. Unlike the equity market, the measured underpricing is the result of both an ex-ante pricing decision made by the bonds' underwriters and significant price dispersion that occurs in the after-market for trading corporate bonds. For the full sample, underpricing averages 45 basis points (BP) for investment grade and 124 BP for high yield offerings. In the aftermarket, customers purchasing a bond on the same day from the same dealer frequently pay prices differing by over $2 (per $100 face amount). However, the introduction of transparency is associated with a reduction in underpricing and aftermarket price dispersion. Whether these gains are potentially passed on to issuing companies is less clear, as non-syndicate member dealers account for a significant proportion of after-market trading activity and price dispersion. Finally, regardless of transparency regime, there is no evidence that dealers in newly issued bonds accumulate significant inventory positions, even when issues subsequently trade below the offering price.
Author: Jun Kyung Auh
Publisher:
ISBN:
Category :
Languages : en
Pages : 68
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Book Description
We study the trading of dealers around new bond issues underwritten by affiliates using a complete matched record of U.S. bond market transactions, ownership structure, and bond issues from 2005 to 2015. Compared to dealers unaffiliated to the lead underwriter, affiliated dealers pay 30-60 basis points more for the issuer's preexisting bonds -- prior to, during, and after the issuance event. We interpret this phenomenon as price maneuvers aimed at lowering the reference yield for new issue investors. By examining dealer inventories and profits, we find no support for alternative explanations such as hedging, informed trading, or competitive advantage in market-making.
Author: Harald Hau
Publisher: International Monetary Fund
ISBN: 149831435X
Category : Business & Economics
Languages : en
Pages : 45
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Book Description
New regulatory data reveal extensive price discrimination against non-financial clients in the FX derivatives market. The client at the 90th percentile pays an effective spread of 0.5%, while the bottom quarter incur transaction costs of less than 0.02%. Consistent with models of search frictions in over-the-counter markets, dealers charge higher spreads to less sophisticated clients. However, price discrimination is eliminated when clients trade through multi-dealer request-for-quote platforms. We also document that dealers extract rents from captive clients and market opacity, but only for contracts negotiated bilaterally with unsophisticated clients.
Author: Komla Dzigbede
Publisher: Edward Elgar Publishing
ISBN: 1800379714
Category : Political Science
Languages : en
Pages : 459
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Book Description
This scholarly Research Handbook captures key observations and analyses within the field of public financial management. It offers much-needed insights into possible future research ventures while presenting contemporary summaries of past studies in this ever-evolving field.
Author: Peter G. Dunne
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
European sovereign bond trading occurs in a highly liquid interdealer market and a parallel dealer-customer market in which buy-side financial institutions request quotes from primary dealers. Synchronized price data from both market segments allow us to compare market quality. We find that customer transactions (i) are on average priced very favourable relative to the best interdealer quotes, (ii) feature a relatively high price dispersion at any given moment and (iii) are less price sensitive to volatility increases than the best interdealer quotes. We develop a simple dynamic model of dealer intermediation which can account for these findings. The dealers' inventory management concerns are shown to be an important determinant of customer transaction quality both in the model and in the data.
Author: Holger Sieg
Publisher: Princeton University Press
ISBN: 0691199973
Category : Business & Economics
Languages : en
Pages :
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Book Description
An innovative advanced-undergraduate and graduate-level textbook in urban economics With more than half of today’s global GDP being produced by approximately four hundred metropolitan centers, learning about the economics of cities is vital to understanding economic prosperity. This textbook introduces graduate and upper-division undergraduate students to the field of urban economics and fiscal policy, relying on a modern approach that integrates theoretical and empirical analysis. Based on material that Holger Sieg has taught at the University of Pennsylvania, Urban Economics and Fiscal Policy brings the most recent insights from the field into the classroom. Divided into short chapters, the book explores fiscal policies that directly shape economic issues in cities, such as city taxes, the provision of quality education, access to affordable housing, and protection from crime and natural hazards. For each issue, Sieg offers questions, facts, and background; illuminates how economic theory helps students engage with topics; and presents empirical data that shows how economic ideas play out in daily life. Throughout, the book pushes readers to think critically and immediately put what they are learning to use by applying cutting-edge theory to data. A much-needed resource for students and policymakers, Urban Economics and Fiscal Policy offers a unique approach to a vital and fast-growing area of economic study. Introduces advanced-undergraduate and graduate students to urban economics Presents the latest theoretical and empirical research Applies economic tools to real-world issues, including housing, labor, education, crime, and the environment Explains and uses simple economic models and quantitative analysis
Author: Johnson, Craig L.
Publisher: Edward Elgar Publishing
ISBN: 1800370938
Category : Business & Economics
Languages : en
Pages : 320
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Book Description
The ability of a nation to finance its basic infrastructure is essential to its economic well-being in the 21st century. This second edition of State and Local Financial Instruments covers the municipal securities market in the United States from the perspective of its primary capital financing role in a fiscal federalist system, where subnational governments are responsible for financing the nationÕs essential physical infrastructure.
Author: Hau Harald
Publisher: International Monetary Fund
ISBN: 1498303773
Category : Business & Economics
Languages : en
Pages : 45
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Book Description
New regulatory data reveal extensive price discrimination against non-financial clients in the FX derivatives market. The client at the 90th percentile pays an effective spread of 0.5%, while the bottom quarter incur transaction costs of less than 0.02%. Consistent with models of search frictions in over-the-counter markets, dealers charge higher spreads to less sophisticated clients. However, price discrimination is eliminated when clients trade through multi-dealer request-for-quote platforms. We also document that dealers extract rents from captive clients and market opacity, but only for contracts negotiated bilaterally with unsophisticated clients.
Author: Refet S. Gürkaynak
Publisher: Edward Elgar Publishing
ISBN: 1800375328
Category : Business & Economics
Languages : en
Pages : 533
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Book Description
The Research Handbook of Financial Markets carefully discusses the histories and current states of the most important financial markets and institutions, as well as explicitly underscoring open questions that need study. By describing the institutional structure of different markets and highlighting recent changes within them, it accurately highlights their evolving nature.
