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Stock Price Response to Calls of Convertible Bonds: Still a Puzzle?
Author(s) -
Brick Ivan E.,
Palmon Oded,
Patro Dilip K.
Publication year - 2007
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2007.tb00087.x
Subject(s) - market liquidity , convertible bond , stock (firearms) , monetary economics , convertible , economics , bond , stock price , financial economics , liquidity crisis , business , finance , biology , paleontology , structural engineering , mechanical engineering , series (stratigraphy) , engineering
The liquidity hypothesis predicts negative abnormal returns around the conversion‐forcing call announcements of convertible bonds, followed by a price recovery. We find the former but not the latter. The liquidity hypothesis also implies that the abnormal returns during the announcement and the post‐announcement periods should be related to proxies for the stock s liquidity. Again, our findings do not support these implications of the liquidity hypothesis. We conclude that the reason for the negative abnormal returns around the announcement of a conversion‐forcing call needs further examination.