Portfolio Selection Effectiveness Based on Absolute Parity Premium: Evidence from Convertible Bond Factor

Haiyi Li, Qianya Ma and Hongmin Sun ()
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Haiyi Li: Sichuan University, School of Economics
Qianya Ma: China Foreign Affairs University, School of International Economics
Hongmin Sun: Beijing Wuzi University, School of Accounting

A chapter in Proceedings of the 8th International Conference on Financial Innovation and Economic Development (ICFIED 2023), 2023, pp 24-38 from Springer

Abstract: Abstract In the past, financial analysis mostly relied on subjective judgment, but with the improvement of the tools brought about by the development of The Times, the use of quantitative tools has become more and more important in financial investment. As an easy to use and expanding computer language, Python is also widely used in quantitative finance. China’s convertible bond market has entered a phase of rapid development since 2017. In this paper, in addition to the traditional research on convertible bond indicators, an innovative research factor of absolute parity premium is cited as a research factor of convertible bonds use Python to back-test and analyze the convertible bond market in the past three years. The results indicate that the absolute parity premium indicator has predictive power for the future return of convertible bonds, and investing in convertible bonds with lower absolute parity premiums can bring significant excess returns. The significance of this paper is to discover and prove the quantitative investment strategy of absolute parity premium bond selection, which provides a new way of thinking for convertible bond investment research.

Keywords: convertible bonds; parity premium CAPM model; Fama-French three-factor model (search for similar items in EconPapers)
Date: 2023
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DOI: 10.2991/978-94-6463-142-5_4

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