Premium
The Pricing of When‐Issued Securities
Author(s) -
Lamoureux Christopher G.,
Wansley James W.
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00338.x
Subject(s) - business , ask price , monetary economics , financial economics , economics , finance
The observed pricing of when‐issued securities would seem to violate the law 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.