Liquidity Risk, Firm Risk, and Issue Risk Premium Effects on the Abnormal Returns to New Issues of Convertible Bonds

Liu, Jinlin; Switzer, Lorne N.

doi:10.2139/ssrn.1364984

Liquidity Risk, Firm Risk, and Issue Risk Premium Effects on the Abnormal Returns to New Issues of Convertible Bonds

55 Pages Posted: 19 Mar 2009

See all articles by Jinlin Liu

Jinlin Liu

Concordia University, Quebec - John Molson School of Business

Lorne N. Switzer

Concordia University, Quebec - Department of Finance

There are 2 versions of this paper

Date Written: March 19, 2009

Abstract

This paper provides new evidence on the effects of the risk profiles of firms on the returns to convertible bond issues. Liquidity risk, firm risk, and issue risk premium factors are examined as determinants of abnormal returns around the convertible bond issue dates. The market responds favorably to the issuance of convertible bonds by issuers with mild levels of firm volatility risk. Liquidity risk (issue size) and issue risk premium factors (convertible Vega) have significantly negative effects on abnormal returns around the issue date. The findings are robust to different grouping criteria and estimation methods.

Keywords: convertible bonds, liquidity, firm risk, Vega

JEL Classification: G12, G14, G30, G32

Suggested Citation: Suggested Citation

Liu, Jinlin and Switzer, Lorne N., Liquidity Risk, Firm Risk, and Issue Risk Premium Effects on the Abnormal Returns to New Issues of Convertible Bonds (March 19, 2009). Available at SSRN: https://ssrn.com/abstract=1364984 or http://dx.doi.org/10.2139/ssrn.1364984