A Bias in Closing Prices: The Case of the When-Issued Pricing Anomaly

The Dutch Grey Market

“…As noted before, the research on such when-issued trading has been an exclusively U.S. preoccupation. This paper shows that the when-issued premium is a more global phenomenon, even though the premium we calculate is lower than the one found in previous studies, such as Brooks and Chiou (1995) and Nayar and Rozeff (2001). Second, our analysis offers additional insights in the workings of whenissued markets.…”

“…For example, Lamoureux and Wansley (1989) present a mean when-issued premium of 0.70% during the thirty-three trading days before the ex-date. Brooks and Chiou (1995) report an average proportional difference of 1.24% over the twenty trading days before the split. Nayar and Rozeff (2001) calculate an average premium of 1.93% over an interval of ten days around the record date of the stock split.…”

“…This apparent violation of the law of one price has triggered a modest wave of research on the pricing of when-issued securities. Lamoureux and Wansley (1989) and Brooks and Chiou (1995) argue that a number of empirical issues can complicate correct measurement of the premium; Nayar and Rozeff (2001) show that the premium may be due to the inconvenience of trading in the unsplit shares after the record date. However, these studies solely employ U.S. data, and it is unclear whether when-issued securities also trade at a premium in other countries.…”

“…We also examine the time pattern in the when-issued premium over a longer period than previous research. For example, Choi and Strong (1983) and Brooks and Chiou (1995) both start their analysis twenty days before the ex-date.…”

The impact of stock split handling rules on returns: Evidence from Canada

“…Specifi cally, the split-adjusted prices of whenissued shares are about 1% above the price of the unsplit shares. Brooks and Chiou (1995) controlled for a variety of factors such as time of the transaction, and reported a premium of 0.75%. As further support of the inconvenience hypothesis, Angel, Brooks, and Mathew (2004) found that volume in the when-issued shares increases by three-fold following the record date of the stock split.…”