The Dutch Grey Market

L. Renneboog, C. SPAENJERS

De Economist

March 2011, vol. 159, n°1, pp.25-40

Departments: Finance, GREGHEC (CNRS)

Keywords: Capital markets, Law of one price, Stock splits, When-issued trading

When-issued trading concerns transactions in securities that have not yet been issued. This paper investigates the Dutch 'grey market' for when-issued shares prior to stock splits, using a unique hand-collected data set. Market makers are more likely to set up a when-issued market when the underlying firm is larger, the relative trading volume of the stock is higher, and the stock return is less volatile. The when-issued securities trade at a small premium over the regular shares during the weeks prior to the stock split, but this when-issued premium disappears in the last days of trading