An examination of investors’ reaction to the announcement of CoCo bonds issuance: A global outlook

Qunfeng Liao, Seyed Mehdian and Rasoul Rezvanian

Finance Research Letters, 2017, vol. 22, issue C, 58-65

Abstract: Major international financial institutions (FIs) are using contingent convertible (CoCo) bonds in the wake of the 2008 financial crisis to meet stricter national and international capital requirements. Beginning with UniCredit's €500m 9.375% CoCo in July 2010, more than 40 publicly held financial institutions headquartered in 16 countries have issued 68 CoCos. According to S&P's 2010 report, by the year 2020, CoCo bond volumes are expected to reach to $1 trillion. This paper examines investors’ reactions to the announcements of CoCo bonds issuances by FIs. Using event-study methodology and measuring cumulative abnormal returns (CARs) following the announcements, we find FIs generally experience negative abnormal returns during the post-announcement period; however, the investors’ reactions vary in a country-by-country analysis. These different reactions create opportunity for investors and issuers to launch global diversification and trading strategies.

Keywords: Convertible bonds; Announcements effects; Abnormal returns (search for similar items in EconPapers)
JEL-codes: G13 G14 G15 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:22:y:2017:i:c:p:58-65

DOI: 10.1016/j.frl.2016.12.034

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