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A Study of the Causality Between Convertible Bond Prices and Stock Prices in Conversion‐price Reset Periods—Time‐series and Cross‐section Analyses
Author(s) -
Wang MaJu,
Lin YunWei,
Lee TsunSiou
Publication year - 2015
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12096
Subject(s) - convertible bond , convertible arbitrage , economics , reset (finance) , monetary economics , convertible , stock (firearms) , market liquidity , financial economics , bond , econometrics , finance , mechanical engineering , structural engineering , capital asset pricing model , arbitrage pricing theory , risk arbitrage , engineering
This study examines the causality between the returns of convertible bonds and stocks during periods of conversion‐price resets and general pre‐reset in Taiwan. Profits, stock turnover, and firm size affect the significance of causality. The empirical results indicate that the returns of convertible bonds always lag behind the stock returns for general pre‐reset periods. However, for reset periods, the numbers of companies for which convertible bonds lead ahead of the stock market increases. The causality reversal is based on uprising liquidity and information transparency. These results provide evidence that various reset price mechanisms affect financing market efficiency.