Search

The pricing model of convertible bonds has emerged as an important assessment model for financial investment in recent years. This model suggests that the pricing model of convertible bonds can be decomposed into the Options Pricing Theory and Pure Bonds Theory. Literature in the past did not explain therelative weight and factors affecting these two models. This research is anattempt to explore the unexplained portion of the pricing model of convertiblebonds by adopting Decision-Making Trial and Evaluation Laboratory, Analytic Network Process, and Multiple Criteria Decision-Making of the VlseKriterijumska Optimizacija I Kompromisno Resenje. The model has been referred to three Taiwanese technology firms issuing convertible bonds for verification. The result indicated that the aforementioned two models are inter-affecting each other and in self-regression. Of the eight criteria, conversion price remains the critical factor affecting the pricing of convertible bonds. It was followed by stock price and yiel...

A great deal of academic research focuses on how bond issuance impacts the firm. Most recent research focuses on investment grade bonds and ignores noninvestment grade bonds. This article investigates the long-run stock underperformance of high-yield bond Initial Bond Offerings (IBOs) in the 3–5-year post-issuing period compared to firms that do not issue stock and/or bonds over the same 5-year post period. A second dataset featuring investment grade bond issuing firms is also compared to firms that do not issue stocks and/or bonds over the same 5-year post period. It is determined that stock underperformance does exist following bond IBOs using both the buy-and-hold return and Fama–French Four-Factor models. The level of underperformance is found to be greatest for callable bonds issuers followed by straight bonds and convertible bond issuers. Additionally, it is learned that high-yield bond issuing firms experience a greater level of underperformance than their investment-grade counterparts. This line o...

The recent growth in interest in convertible bond arbitrage (CBA) has come predominately from the hedge fund industry. Past empirical evidence has shown that a CBA strategy generates positive monthly abnormal risk adjusted returns. However, these studies have focused on hedge fund returns which exhibit instant history bias, selection bias, survivorship bias and smoothing. This paper replicates the core underlying CBA strategy to generate an equally weighted and market capitalisation daily CBA return series free of these biases, for the period 1990 through to 2002. These daily series also capture important short-run price dynamics that previous studies have ignored.