Market discipline in the banking industry: evidence from spread dispersion
Year: 2010
Type: article
Abstract: Do bond investors price hidden information? To address this question, we use a heteroscedastic regression model to empirically examine the factors affecting the spread dispersion unexplained by easy-to-observe issue characteristics (such as credit ratings, size, maturity, etc.). Two main results emerge from the empirical analysis. First, variables that accurately predict the spread of the typical bond lose their explanatory power for worse-rated, subordinated bonds with longer maturity and smaller face value. This result suggests that investors price hidden information. Secondly, unexplained spread dispersion increases for open-priced offers and decreases with the number of banks involved in the syndicate, indicating that primary market characteristics affect the investors’ ability to uncover hidden information.
Source: European Journal of Finance
Author: Giuliano Iannotta
Institution: Bocconi University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1985135132