Pricing new corporate bond issues: an analysis of issue cost and seasoning effects

Article Abstract:

Research into the pricing of newly issued corporate bonds concentrates on analyzing seasoning effects and underwriting costs as they relate to prices. Special characteristics of the corporate bond market are identified and discussed. For example, actual trader quotes allow more accurate measurement of bond holding period returns. The research suggests that costs associated with issuing corporate bonds are not as high as other research has reported them to be. The discussion by Robert A. Taggart Jr. following this paper's presentation focuses on empirical methodology and the unique factors affecting the corporate bond market. It is noted that researchers should pay attention to detail when structuring empirically measurable tests and that seasoning effects and underwriting costs may not affect corporate bond yields as much as was once thought.

Conferences, meetings and seminars, Economic aspects, Venture capital, Bonds, Bonds (Securities), Going public (Securities), Initial public offerings, American Finance Association

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Index options: the early evidence

Article Abstract:

Following a brief history of the marketing of index option contracts, which began in 1983, two contracts are analyzed using intra-day pricing data. The analysis of the two most popular index option contracts, the S & P 100 (originally the Chicago Board of Options Exchange) and the Major Markets Index (associated with the American Stock Exchange), indicates that these contracts do not conform to arbitrage boundaries or put-call parities and may be mispriced according to theoretical pricing conventions. The apparent inefficiencies of these index option markets are possibly caused by investors' inability to arbitrage the contracts at low risk. In a discussion of the research, some similarities in performance and pricing between these new financial investment instruments and those offered on the S & P 500 index are also noted.

Services, Stocks, Options (Finance), Securities prices, Stock prices, Standard & Poor's Corp., American Stock Exchange L.L.C., Stock index options

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Efficient financing under asymmetric information

Article Abstract:

This paper characterizes the conditions under which the adverse-selection problem, which may prevent a firm from issuing securities to finance an otherwise profitable investment, may be costlessly overcome by an appropriate choice of financing strategy. The conditions are specialized when the information asymmetry may be characterized by either a first-degree-stochastic-dominance or a mean-preserving-spread ordering across possible distributions of firm earnings. Possible financing strategies that resolve the information asymmetry are discussed, and the results are related to recent empirical findings concerning security issues. (Reprinted by permission of the publisher.)

Financial research

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