JOURNAL ARTICLE

Market Volatility, Valuation Uncertainty, and the Underpricing of Corporate Bond Offerings.

  • Published In: Journal of Fixed Income, 2025, v. 34, n. 4. P. 78 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Goh, Jeremy C.; Malatesta, Paul H.; Yang, Zongfei "Lisa" 3 of 3

Abstract

Bond initial public offering (IPO) underpricing is systematic, fluctuates noticeably over time, and is considerably larger during periods of high market uncertainty. Consistent with IPO theory, we find that underpricing is increasing in firm's default probability. We also documented a novel result that very highly rated bonds (rated Aa and above) are also underpriced. In addition, we find that within each rating category, the underpricing is increasing in market volatility. Using transaction data, we document that corporate bond underpricing is robust to bid-ask bounces and not driven by small number of trades. Our results support IPO theories suggesting underwriters' increasing difficulties in estimating asset value among firms with higher valuation uncertainty during periods of high market volatility. [ABSTRACT FROM AUTHOR]

Additional Information

  • Source:Journal of Fixed Income. 2025/04, Vol. 34, Issue 4, p78
  • Document Type:Article
  • Subject Area:Business and Management
  • Publication Date:2025
  • ISSN:1059-8596
  • DOI:10.3905/jfi.2025.1.200
  • Accession Number:184561975
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