Calls of convertible debt securities: no bad news at all

Tobias Nigbur ()

Financial Markets and Portfolio Management, 2015, vol. 29, issue 1, 79 pages

Abstract: In this paper, I examine the impact of in-the-money convertible bond calls on stock prices, employing a sample of US convertible bond calls over the period 1994–2011. In contrast to previous literature, I find that conversion-forcing convertible bond calls do not significantly influence stock prices. I posit that the discrepancy between my results and those in the literature is caused by amplified screening criteria, especially strong news cleaning. Companies tend to announce calls as side notes to other major corporate news, resulting in an event-study bias. Further, convertible bond design, moneyness of the conversion option at the announcement date, and convertible-arbitrage strategies cast doubt on the negative abnormal returns reported by previous literature. Copyright Swiss Society for Financial Market Research 2015

Keywords: Conversion-forcing convertible bond calls; Event study; G14; G32 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11408-014-0243-z

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