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Are They Still Called Late? The Effect of Notice Period on Calls of Convertible Bonds

Ayca Altintig
Chapman University - The George L. Argyros School of Business & Economics

Alexander W. Butler
Rice University - Jesse H. Jones Graduate School of Management

April 4, 2003

Abstract:
The notice period given to convertible bondholders affects the optimal call policy for convertible bonds. After accounting for the notice period, convertible bonds in our sample would have been optimally called when the stock was at about an 11% premium (median) relative to the conversion price. We find that convertible bonds are, on average, not called later than optimal. The average (median) excess call premium is only 2.65% (1.71%) for those bonds without binding call protection. These values are statistically indistinguishable from zero and are substantially less than the 26%-44% call premium found by previous researchers.

Keywords: Convertible bonds, call policy

Working Paper Series

Date posted: May 07, 2003 ; Last revised: May 08, 2003

Suggested Citation

Butler, Alexander W. and Altintig, Ayca, Are They Still Called Late? The Effect of Notice Period on Calls of Convertible Bonds (April 4, 2003). Available at SSRN: http://ssrn.com/abstract=394060 or doi:10.2139/ssrn.394060

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Contact Information

Alexander W. Butler (Contact Author) Rice University - Jesse H. Jones Graduate School of Management ( email ) MS 531 Houston, TX 77005 United States 713-348-6341 (Phone) HOME PAGE: http://www.owlnet.rice.edu/~awbutler/
Z. Ayca Altintig Chapman University - The George L. Argyros School of Business & Economics ( email ) 333 N. Glassell Orange, CA 92866 United States