The Determinants of CoCo Bond Prices

Posted: 15 Oct 2018

See all articles by Sara Abed Masror Khah

Sara Abed Masror Khah

Universite du Luxembourg

Theo Vermaelen

INSEAD - Finance

Christian C. P. Wolff

University of Luxembourg - Luxembourg School of Finance; Centre for Economic Policy Research (CEPR)

Date Written: October 15, 2018

Abstract

This study aims to test empirically how contingent convertible (CoCo) bond prices are affected by the main theoretical determinants and design features. The theoretical framework used in this paper is the Equity Derivatives Model suggested by De Spiegeleer and Schoutens [2012]. We test for the relationship between CoCo prices and key variables suggested by this model. We find that the main determinants are mostly significant and that the explanatory power of the model is high with an R-squared of 86 percent. The power of the model is not affected by the loss absorption mechanism (conversion to equity or principal write-down). We also identify a number of additional explanatory variables of importance.

Suggested Citation

Abed Masror Khah, Sara and Vermaelen, Theo and Wolff, Christian C. P., The Determinants of CoCo Bond Prices (October 15, 2018). INSEAD Working Paper No. 2018/50/FIN. Available at SSRN: https://ssrn.com/abstract=3312152 or http://dx.doi.org/10.2139/ssrn.3266379

Sara Abed Masror Khah

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Theo Vermaelen (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
33 1 60 72 42 63 (Phone)
33 1 60 72 40 45 (Fax)

Christian C. P. Wolff

University of Luxembourg - Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
Luxembourg

HOME PAGE: http://www.lsf.lu

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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