The Pricing of When-Issued Securities

Christopher G Lamoureux and James W Wansley

The Financial Review, 1989, vol. 24, issue 2, 183-98

Abstract: The observed pricing of when-issued securities would seem to violate the laws of one price in financial economics. Generally, when-issued shares sell at a premium over the original shares during the short time when both are traded. This paper examines whether this observed premium could be due to a nonsynchronous trading problem, to the intensity of trading, to the exchange on which the shares are traded, to whether the shares are traded pre- or post-negotiable commissions, or to the nature of the demand for when-issued relative to the price setting of the specialist. Results indicate that most orders for when-issued securities are buys, that these orders typically take place at the specialist's ask price, and that accounting for this trading mechanism explains the positive premium on when-issued securities. Copyright 1989 by MIT Press.

Date: 1989
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