Clientele Effects and Cross-Security Market Making: Evidence from Calls of Convertible Preferred Securities
Financial Management, Vol. 27, No. 4, Winter 1998
Posted: 19 Feb 1999
We examine trading activity, bid-ask spreads, and potential arbitrage opportunities for market makers in the period around conversion-forcing calls of convertible preferred securities. We find an increased turnover in the called convertible preferred stock, which is consistent with a clientele effect. We also find a decrease in the average bid-ask spread of the called convertible preferred and the underlying common stock. This suggests increased liquidity in the post-announcement period. We argue that the liquidity improvement is a consequence of profitable cross-security trading opportunities.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation