Pricing New Corporate Bond Issues: An Analysis of Issue Cost and Seasoning Effects


  • W. K. H. FUNG,


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    • Shearson Lehman Bros. and Rutgers University, and BARRA and University of California at Berkeley, respectively. This research has been supported by Shearson Lehman Bros, and BARRA. We thank P. Kung, B. Mosely, F. Ng, B. Newhouse, K. Taufa, and B. Jordan for conceptual help, programming and data assistance. We alone are responsible for all errors and omissions.


The pricing of new corporate bond issues is examined, with particular emphasis on the seasoning effect and the cost of underwriting. Considerable attention is paid to some special features of the corporate bond market, including the use of actual trader quotes so as to accurately measure holding period returns. Our results suggest that the cost of issuing corporate bonds is less than previously reported.