Equity and Bond Exposure of Convertible Bond Funds: Region Matters

42 Pages Posted: 7 Mar 2013

See all articles by Geert Van Campenhout

Geert Van Campenhout

KU Leuven - FEB@HUBrussel

Rosanne Vanpee

KU Leuven Faculty of Economics and Business

Date Written: March 6, 2013

Abstract

This paper shows that the characteristics of convertible bond funds (CBFs) differ considerably based on the regional asset allocation of the fund. More specifically, U.S. CBF returns correlate more strongly with equity returns, while European and Asian CBFs returns show a higher correlation with bond returns. This is a consequence of the finding that U.S. convertibles are more equity-like in nature than European and Asian convertibles, which are constructed more like a bond. Moreover, we show that global CBFs have different characteristics depending on the nationality of the asset management company. A global CBF managed by a European (U.S.) asset management firm exhibits more bond (equity) like features because portfolio managers tend to compose home biased portfolios. Our results have important repercussions for both investors and researchers, as the characteristics of a convertible bond fund will differ, not only based on the regional asset allocation of the fund, but also based on the domicile of the asset management firm. Thus, the performance of the fund and its correlation with other assets may turn out to be different from the investor’s ex ante expectations and expectations of fund managers and clients risk to be divergent.

Keywords: Convertible bond funds, regional factors, risk factors

JEL Classification: C23, G15, G23

Suggested Citation

Van Campenhout, Geert and Vanpee, Rosanne, Equity and Bond Exposure of Convertible Bond Funds: Region Matters (March 6, 2013). Available at SSRN: https://ssrn.com/abstract=2229100 or http://dx.doi.org/10.2139/ssrn.2229100

Geert Van Campenhout

KU Leuven - FEB@HUBrussel ( email )

Warmoesberg 26
Brussel, 1000
Belgium

Rosanne Vanpee (Contact Author)

KU Leuven Faculty of Economics and Business ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

HOME PAGE: http://scholar.google.be/citations?user=yhAZIHEAAAAJ&hl=en

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