The Intriguing Case of KMP and KMR

Abstract

Kinder Morgan Energy Partners (KMP) and Kinder Morgan Management (KMR) issue two separate securities that provide essentially identical cash flows. There are, however, minor distinctions between the securities in regard to the form of payout, taxation, control rights, and liquidity. Cornell studies the variation over time in the relative valuation of KMP and KMR to gain insight into the impact of those distinctions on asset pricing. The surprising result of this study is the discovery of a significant and continuing price differential between the two securities, but none of the distinctions between the two securities explains the price differential’s level or its variation over time.