Do Municipal Bond Dealers Give their Customers 'Fair and Reasonable' Pricing?

124 Pages Posted: 9 Aug 2022

See all articles by John M. Griffin

John M. Griffin

University of Texas at Austin - Department of Finance

Nicholas Hirschey

Nova School of Business and Economics

Samuel Kruger

University of Texas at Austin - Department of Finance

Date Written: August 4, 2022

Abstract

Municipal bonds exhibit considerable retail pricing variation, even for same-size trades of the same bond on the same day, and even from the same dealer. Markups vary widely across dealers. Trading strongly clusters on eighth price increments, and clustered trades exhibit higher markups. Yields are often lowered to just above salient numbers. Machine learning estimates exploiting the richness of the data show that dealers that use strategic pricing have systematically higher markups. Recent MSRB rules have had only a limited impact on markups. While a subset of dealers focus on best execution, many dealers appear focused on opportunistic pricing.

Keywords: municipal bonds, markups, price clustering, opportunistic pricing

JEL Classification: G14, G18, G24

Suggested Citation

Griffin, John M. and Hirschey, Nicholas and Kruger, Samuel, Do Municipal Bond Dealers Give their Customers 'Fair and Reasonable' Pricing? (August 4, 2022). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4181062

John M. Griffin

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Nicholas Hirschey

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

Samuel Kruger (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
612
Abstract Views
1,641
Rank
81,747
PlumX Metrics