Seminar – Dealer behaviour and the trading of newly issued corporate bonds

Edith Hotchkiss, Professor of Finance, Carroll School of Management, Boston College

A light lunch will be available outside the lecture theatre at 12:15 with the seminar starting at 13:00.

This paper examines dealers’ secondary market trading in newly issued corporate bonds to understand who gains from aftermarket sales to customers at higher prices. Retail investors largely purchase bonds from non-underwriters at increasing prices, while institutions buy from underwriters at higher prices initially but lower prices longer term. We provide evidence that underwriters benefit from knowledge of demand and fundamental value from the book-building process, while non-underwriters benefit from market power due to connections with investors lacking a trading relationship to the underwriter. Overall, the gains from selling bonds at higher secondary market prices accrue to primary market investors and to non-underwriters, and are unlikely to be recaptured by issuers.

Speaker bio

Edith Hotchkiss is a Professor of Finance at the Carroll School of Management at Boston College. Her research focuses on various aspects of US corporate debt markets, and particularly on the efficiency of the Chapter 11 process. In addition to publications in peer reviewed academic journals, Professor Hotchkiss has authored several book chapters on the bankruptcy process, and co-authored the text “Corporate Financial Distress, Restructuring and Bankruptcy” (Wiley Finance, 2019). She has served as an expert for creditor committees of several large Chapter 11 cases, on the national board of the Turnaround Management Association, and as an independent economist to FINRA on issues related to corporate bond market trading and transparency. She current serves as an associate editor for the Review of Financial Studies and managing editor of the Journal of Banking and Finance.

Dr Hotchkiss received her PhD in Finance from the Stern School of Business at New York University and her BA from Dartmouth College. Prior to entering academics, she worked in consulting and for the Financial Institutions Group of Standard & Poor’s Corporation.

For more information, please contact Emily Brown.