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THE SEASONALITY IN CONVERTIBLE BOND MARKETS: A STOCK EFFECT OR BOND EFFECT?
Author(s) -
Ma Christopher K.,
Rao Ramesh P.,
Weinraub Herbert J.
Publication year - 1988
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1988.tb00093.x
Subject(s) - convertible bond , convertible arbitrage , bond , equity (law) , stock (firearms) , financial economics , bond market index , common stock , economics , monetary economics , business , capital asset pricing model , finance , arbitrage pricing theory , geography , context (archaeology) , archaeology , political science , risk arbitrage , law
There is a strong January effect in convertible bond returns that has been partially attributed to seasonality in the underlying stock. January returns for convertible bonds are positively influenced by the degree to which the bond reflects the underlying equity, which suggests that the anomaly in one asset market may carry over to its derivative asset market. Significant evidence presented here indicates that the January effect also is attributable to unique tax‐loss selling in the convertible bond market. A peripheral contribution of this study is that, similar to findings in the stock market, the risk‐return trade‐off appears to hold only in January for convertible bonds.