Today SLCG posted a new working paper titled "Using EMMA to Assess Municipal Bond Markups". In it, our colleagues Geng Deng and Craig McCann report a veritable pandemic of excessive markups charged to retail investors in the municipal bond market. This work has been highlighted in a recent Wall Street Journal article by Jason Zweig. Jason's looked at markups generically in the past and we're happy this story has caught his attention.
The primary findings of the paper are that:
Municipal bond markups are often excessive, exceeding contemporaneous inter-dealer trades in some cases by more than 3%;
Smaller trades tend to have larger markups, but the variability in excessive markups is much greater for larger trades;
The total amount of excessive markups charged to retail investors may have exceeded $10 billion since 2005.
We think these findings have important implications for the municipal bond market -- and for retail investors in particular -- and so we are devoting next week to discussing the municipal bond market in the context of these findings, offering some background and elaboration of the findings in the new paper.
Please feel free to add to the discussion in the comments section of each post, or to contact us directly with questions or suggestions.
