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Underpricing of Newly Issued Bonds: Evidence from the Swiss Capital Market

1988; Wiley; Volume: 43; Issue: 5 Linguagem: Inglês

10.2307/2328213

1540-6261

Walter Wasserfallen, Daniel Wydler,

Financial Markets and Investment Strategies

The Journal of FinanceVolume 43, Issue 5 p. 1177-1191 Article Underpricing of Newly Issued Bonds: Evidence from the Swiss Capital Market WALTER WASSERFALLEN, WALTER WASSERFALLENSearch for more papers by this authorDANIEL WYDLER, DANIEL WYDLERStudy Center Gerzensee, Foundation of Swiss National Bank and Bank Pictet & Co., Geneva, respectively. The comments by J. Williams as well as by participants at the 13th Annual Meeting of the European Finance Association, Dublin 1986, are gratefully acknowledged. The unusually detailed suggestions by two referees resulted in a significant improvement of the paper.Search for more papers by this author WALTER WASSERFALLEN, WALTER WASSERFALLENSearch for more papers by this authorDANIEL WYDLER, DANIEL WYDLERStudy Center Gerzensee, Foundation of Swiss National Bank and Bank Pictet & Co., Geneva, respectively. The comments by J. Williams as well as by participants at the 13th Annual Meeting of the European Finance Association, Dublin 1986, are gratefully acknowledged. The unusually detailed suggestions by two referees resulted in a significant improvement of the paper.Search for more papers by this author First published: December 1988 https://doi.org/10.1111/j.1540-6261.1988.tb03963.xCitations: 18 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onEmailFacebookTwitterLinkedInRedditWechat ABSTRACT The pricing of newly issued bonds on the Swiss capital market is investigated over the years 1980–1982. The results reveal a slight underpricing of new bonds at the issue date that is roughly equal to the difference in transactions costs between the markets for new and seasoned bonds. Underpricing is no longer observed when the new bonds start to be traded on the stock exchange, that is, after about two days. Tests of several hypotheses show that unexpected changes in interest rates over the offering period explain part of the underpricing. REFERENCES 1Gerald O. Bierwag, George G. Kaufman, and Chulsoon Khang. Duration and Bond Portfolio Analysis: An Overview. Journal of Financial and Quantitative Analysis 13 (November 1978), 671–81. 2Andrew F. Brimmer Credit Conditions and Price Determination in the Corporate Bond Market. Journal of Finance 15 (September 1960), 353–70. 3Joseph W. Conard and Mark W. Frankena The Yield Spread between New and Seasoned Corporate Bonds, 1952–63." In J. Guttentag and P. Cagan (eds.), Essays on Interest Rates, Vol. 1. New York: National Bureau of Economic Research, 1969, 143–222. 4Louis H. Ederington The Yield Spread on New Issues of Corporate Bonds. Journal of Finance 29 (December 1974), 1531–43. 5W. K. H. Fung and Andrew Rudd. Pricing of New Corporate Bond Issues: An Analysis of Issue Cost and Seasoning Effects. Journal of Finance 41 (July 1986), 633–44. 6George G. Judge, William E. Griffiths, R. Carter Hill, and Tsoung-Chao Lee. The Theory and Practice of Econometrics. New York: John Wiley & Sons, 1980. 7John R. Lindvall New Issue Corporate Bonds, Seasoned Market, Efficiency, and Yield Spreads. Journal of Finance 32 (September 1977), 1057–67. 8F. R. Macaulay. Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yields and Stock Prices in the United States Since 1856. New York: National Bureau of Economic Research, 1938. 9John E. Parsons and Artur Raviv. Underpricing of Seasoned Issues. Journal of Financial Economics 14 (September 1985), 377–97. 10James E. Pesando On the Random Walk Characteristics of Short- and Long-Term Interest Rates in an Efficient Market. Journal of Money, Credit and Banking 11 (November 1979), 457–66. 11Kevin Rock. Why New Issues Are Underpriced. Journal of Financial Economics 15 (JanuaryFebruary 1986), 187–212. 12Clifford W. Smith Jr. Investment Banking and the Capital Acquisition Process. Journal of Financial Economics 15 (JanuaryFebruary 1986), 3–29. 13Eric H. Sorensen On the Seasoning Process of New Bonds: Some Are More Seasoned Than Others. Journal of Financial and Quantitative Analysis 17 (June 1982), 195–208. 14Mark I. Weinstein The Seasoning Process of New Corporate Bond Issue. Journal of Finance 33 (December 1978), 1343–55. 15Halbert White. Instrumental Variables Regression with Independent Observations. Econometrica 50 (March 1982), 483–99. Citing Literature Volume43, Issue5December 1988Pages 1177-1191 ReferencesRelatedInformation