EconPapers    
Economics at your fingertips  
 

Does Convertible Arbitrage Risk Exposure Vary Through Time?

Liam Gallagher (), Mark Hutchinson and John O’Brien ()
Additional contact information
Mark Hutchinson: Cork University Business School, University College Cork, College Road, Cork, Ireland
John O’Brien: Cork University Business School, University College Cork, College Road, Cork, Ireland

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2018, vol. 21, issue 04, 1-25

Abstract: We model the returns of the convertible arbitrage strategy using a non-linear framework. This strategy has generated long periods of positive returns and low volatility, followed by shorter periods of extreme negative returns and high volatility, associated with market upheaval. We specify a smooth transition regression model to assess performance, a class of model particularly suited to this type of strategy as it allows gradual transition between risk regimes. We show that in alternate regimes, the strategy exhibits relatively high (low) exposure to risk factors and alpha is high (low). The evidence reported can account for abnormal returns demonstrated in previous studies.

Keywords: Regime switching; hedge fund; convertible arbitrage (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091518500261
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:rpbfmp:v:21:y:2018:i:04:n:s0219091518500261

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091518500261

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().

 
Page updated 2020-11-26
Handle: RePEc:wsi:rpbfmp:v:21:y:2018:i:04:n:s0219091518500261