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Search and Pricing in Security Issues Markets: Theory and Evidence

Ioannis V. Floros¹; Vladimir A. Gatchev²; Ajai K. Singh²; Qinghai Wang²

¹ University of Wisconsin–Milwaukee · ² University of Central Florida

Abstract We present a search model that incorporates two key features of security issuances in centralized markets: the search for investors and information gathering. In the model, a seller contacts investors sequentially and uses reported interest to update the security’s value, while each investor reports interest strategically. We characterize the seller’s value-maximizing strategy in which search structure, duration, security pricing, and allocations are jointly determined. We derive novel implications from the model and find empirical support using a sample of accelerated seasoned equity offers, which have become prevalent in recent years and involve both search and information gathering.

DOI

10.1093/rcfs/cfaf024

Language

en

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