Tricks of the Trade? Pre-Issuance Price Maneuvers by Underwriter-Dealers
Publication Date
3-7-2018
Abstract
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.
Document Type
Article
Keywords
Bond Underwriting, Dealer Market, Corporate Bonds, Price Support
Disciplines
Finance
DOI
10.2139/ssrn.3132177
Source
SMU Cox: Finance (Topic)
Language
English
