Corporate Bond Initial Public Offerings: Liquidity, Price Dispersion, Spreads, and Dealer Inventory”
We find significant price dispersion in the trading of new issues of 4,122 newly issued corporate bonds from July 2002 to May 2008, which is reduced by transparency, but is worse during the credit crisis of 2007 and 2008 for investment grade bonds. New issue underpricing averages 45 BP for investment grade and 124 BP for high yield offerings for institutional size trades and 1% higher for non-institutional size trades. There is no evidence that dealers in newly issued bonds accumulate significant inventory positions, even when issues subsequently trade below the offering price.
Goldstein, Michael and Hotchkiss, Edith, "Corporate Bond Initial Public Offerings: Liquidity, Price Dispersion, Spreads, and Dealer Inventory”" (2011). Babson Faculty Research Fund Working Papers. 100.