THE SEASONING PROCESS OF NEW CORPORATE BOND ISSUES.

There have been a number of studies of the price/yield behavior of newly-issued corporate bonds. These studies find that there are systematic differences in yield to maturity between newly-issued bonds and bonds that have been outstanding for some time. Typically, new issues have higher yields and these differences are usually found to persist for some time after issue. Authors realize that such differences are inconsistent with an efficient bond market and usually explain these differences by appeal to various assumed market imperfections, such as a "thin" market in seasoned issues. In this paper we approach the question of differences between new and seasoned issues by concentrating on holding-period returns (coupon plus capital gain) instead of the more usual yield to maturity. That is, we ask whether there are differences in holding period returns between seasoned and unseasoned bonds. The paper is organized as follows: Section I briefly surveys the literature on the seasoning process and develops our approach; Section II develops the hypotheses and describes our test procedure; Section III describes the data used and the results of our tests and Section IV discusses the implications of our findings. [ABSTRACT FROM AUTHOR]