Underwriting of Municipal Debt and Placement Risk Premiums in Broker-Dealer Market Transaction Prices

This study examines the relationship between underwriter placement risk and market transaction prices using a sample of state general obligation bonds. We proxy underwriter placement risk using three variables: “when-issued” trades, underwriter syndicate size, and bond sale method. When-issued trades and larger underwriting syndicates have an inverse association with transaction prices (stated as percentage of par) and have a positive association with transaction yields (based on transaction price), all else constant. Negotiated sales have a positive relationship with transaction prices and a negative relationship with transaction yields