Overallocation and secondary market outcomes in corporate bond offerings

Hendrik Bessembinder, Stacey Jacobsen, William Maxwell and Kumar Venkataraman

Journal of Financial Economics, 2022, vol. 146, issue 2, 444-474

Abstract: Bond underwriters, lacking “Greenshoe options” and formal systems to track “flipping” activity, have fewer tools than equity underwriters to manage secondary market order flow uncertainty. We show that bond underwriters respond by selectively “overallocating” some issues to attain net short positions. Overallocations are economically substantive, facilitate the syndicate's price stabilization efforts, and are largely offset in the days after issuance. These issues on average experience more net selling by institutional investors and, despite large syndicate purchases, appreciate less in the secondary market. Thus, overallocation is an observable indicator that underwriters anticipate weakness in net secondary market demand.

Keywords: Primary market; Corporate bonds; Bond microstructure; Greenshoe; Overallocation (search for similar items in EconPapers)
JEL-codes: G12 G14 G21 G23 G24 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:2:p:444-474

DOI: 10.1016/j.jfineco.2022.08.001

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