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THE DISPERSION OF BIDS ON INDIVIDUAL NEW MUNICIPAL ISSUES
Author(s) -
Benson Earl D.
Publication year - 1982
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1982.tb00296.x
Subject(s) - underwriting , municipal bond , dispersion (optics) , issuer , bond , interest rate , price dispersion , economics , business , empirical research , financial economics , actuarial science , monetary economics , microeconomics , finance , mathematics , statistics , physics , optics
Abstract This paper examines the determinants of the dispersion of interest rates bid on competitively sold, new municipal issues. Theory suggests that the dispersion of prices (interest rates) on a new municipal issue depends on the expected costs and benefits of underwriter search on that issue. The greater the expected costs and the lower the expected benefits, the smaller will be underwriter search and the greater will be municipal interest rate dispersion. For empirical testing, the expected costs and benefits of underwriter search are measured by characteristics of the bond issue, the bond issuer, and the market conditions. The empirical tests suggest that the theory holds.