Economics at your fingertips  

Determinants of Contingent Convertible Bond Coupon Rates of Banks: An Empirical Analysis (Michael Sigmund, Kevin Zimmermann)

Michael Sigmund and Kevin Zimmermann ()
Additional contact information
Kevin Zimmermann: Oesterreichische Nationalbank

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: In this paper, we analyze the determinants of coupon rates of contingent convertible bonds (CoCos). We construct a data set of additional Tier 1 (AT1) CoCos issued by banks in the European Economic Area between 2014 and 2020. Following elements of the standard asset pricing model with additional factors motivated by the arbitrage pricing theory, we empirically test whether di erent conversion types as well as several other factors determine the coupon rate besides the yields of other portfolios. We find that CoCo coupon rates are sensitive to risk variables at the instrument-, bank-, country- and market-level. In contrast to theoretical pricing models, we cannot confirm the expected price premium for the conversion type permanent-principal-write-down (PPWD) compared to conversion-to-equity (CE) and temporary-principal-write-down (TPWD). Our findings suggest that there is risk-shifting incentive induced by CoCo investors as well as a selection process into di erent conversion types, with the majority of PPWD CoCos being issued in Switzerland and most of the CE CoCos being issued in Great Britain and Spain.

Keywords: Contingent convertible bonds; asset pricing; banks; risk factors (search for similar items in EconPapers)
Date: 2021-12-15
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden ( [303 See Other]-->

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:

Ordering information: This working paper can be ordered from
Oesterreichische Nationalbank, Economic Studies Division, POB 61, A-1011 Vienna, Austria

Access Statistics for this paper

More papers in Working Papers from Oesterreichische Nationalbank (Austrian Central Bank) P.O. Box 61, A-1011 Vienna, Austria. Contact information at EDIRC.
Bibliographic data for series maintained by Markus Knell ().

Page updated 2023-06-05
Handle: RePEc:onb:oenbwp:236