On the Preferences of CoCo Bond Buyers and Sellers: A Logistic Regression Analysis

37 Pages Posted: 3 Dec 2019

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Woo-Young Kang

Brunel University London - Department of Economics and Finance

Date Written: November 2019

Abstract

This paper estimates the preference scores of CoCo bond buyers and sellers by running logistic regressions taking into account both bond and issuing bank’s characteristics, and also considers the role of country−specific CoCo bond market competitiveness. Buyers are defined as having a preference for CoCo bonds if their return-to-risk is higher than the corresponding 25th, 50th and 75th annual percentile values; the preferences of buyers and sellers are assumed to be mutually exclusive. Differences in the degree of risk aversion of buyers and sellers and in the determinants of their preferences are found across percentiles. Further, coupon payment, conversion mechanism, credit rating and P/B ratio appear to be the strongest global determinants of CoCo bond trading between buyers and sellers, these being very responsive to CoCo bond and issuing bank’s characteristics in most European countries, Brazil, Mexico and China (especially in the UK and China).

Keywords: CoCo bonds, buyers and sellers, preference scores, logistic regressions

JEL Classification: C250, C390, F390, G110, G210, G240, G280

Suggested Citation

Caporale, Guglielmo Maria and Kang, Woo-Young, On the Preferences of CoCo Bond Buyers and Sellers: A Logistic Regression Analysis (November 2019). CESifo Working Paper No. 7551. Available at SSRN: https://ssrn.com/abstract=3357128

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
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+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Woo-Young Kang

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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