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The Pricing of Instalments Receipts: New Zealand Evidence

Author

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  • Alastair Marsden

    (Department of Accounting and Finance, University of Auckland, Private Bag 92019, Auckland 1020, New Zealand)

  • Russell Poskitt

    (Department of Accounting and Finance, University of Auckland, Private Bag 92019, Auckland 1020, New Zealand)

Abstract

We examine the pricing of instalments receipts ("IRs") issued on the New Zealand stock market that trade concurrently with the underlying shares. An IR is a security that has identical entitlements to dividends receipts as the holder of an ordinary share but allows the holder to acquire the ordinary share with fixed pre-scheduled payments spread over a period of time. Similar to Charupat and Prisman (2004) for IRs traded in the Canadian market, we find that IRs of secondary offerings in the New Zealand market trade at an economically significant premium in the immediate period following their initial issue. The premium then declines over time and becomes negative in the period prior to the final instalment payment date. Our study suggests the benefits of IRs are not unique to one institutional environment and that issuers can increase the demand for new securities by overcoming investors' borrowing restrictions.

Suggested Citation

  • Alastair Marsden & Russell Poskitt, 2004. "The Pricing of Instalments Receipts: New Zealand Evidence," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 423-449.
    • Handle: RePEc:wsi:rpbfmp:v:07:y:2004:i:03:n:s0219091504000172
    DOI: 10.1142/S0219091504000172
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    References listed on IDEAS

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    1. Frederic S. Mishkin, 1990. "Financial Innovation and Current Trends in U.S. Financial Markets," NBER Working Papers 3323, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Oliver Entrop & Michael McKenzie & Marco Wilkens & Christoph Winkler, 2016. "The performance of individual investors in structured financial products," Review of Quantitative Finance and Accounting, Springer, vol. 46(3), pages 569-604, April.

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    More about this item

    Keywords

    Instalment receipts; market efficiency; financial innovation; JEL Classification G12; JEL Classification G13; JEL Classification G14;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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