Underpricing of Newly Issued Bonds: Evidence from the Swiss Capital Market




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    • Study Center Gerzensee, Foundation of Swiss National Bank and Bank Pictet & Co., Geneva, respectively. The comments by J. Williams as well as by participants at the 13th Annual Meeting of the European Finance Association, Dublin 1986, are gratefully acknowledged. The unusually detailed suggestions by two referees resulted in a significant improvement of the paper.


The pricing of newly issued bonds on the Swiss capital market is investigated over the years 1980–1982. The results reveal a slight underpricing of new bonds at the issue date that is roughly equal to the difference in transactions costs between the markets for new and seasoned bonds. Underpricing is no longer observed when the new bonds start to be traded on the stock exchange, that is, after about two days. Tests of several hypotheses show that unexpected changes in interest rates over the offering period explain part of the underpricing.