Are They Still Called Late? The Effect of Notice Period on Calls of Convertible Bonds
24 Pages Posted: 7 May 2003
Date Written: April 4, 2003
The notice period given to convertible bondholders affects the optimal call policy for convertible bonds. After accounting for the notice period, convertible bonds in our sample would have been optimally called when the stock was at about an 11% premium (median) relative to the conversion price. We find that convertible bonds are, on average, not called later than optimal. The average (median) excess call premium is only 2.65% (1.71%) for those bonds without binding call protection. These values are statistically indistinguishable from zero and are substantially less than the 26%-44% call premium found by previous researchers.
Keywords: Convertible bonds, call policy
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