The Market for New Issues of Municipal Bonds : The Roles of Transparency and Limited Access to Retail Investors

I examine how transparency and inter-dealer trading affects prices investors pay in municipal bond offerings. Real-time trade reporting for municipal bonds started January 31, 2005. The dispersion of purchase prices fell sharply at that time. There was little impact on average markups for most trades, but they increased for purchases of more than $100,000. Bonds often pass through a series of dealers before being placed with a buy and hold investor. As the inter-dealer trades progress, trade sizes decline and trade prices rise. Markups on investor purchases increase with the amount of inter-dealer trading before the trade