Are They Still Called Late? The Effect of Notice Period on Calls of Convertible Bonds

24 Pages Posted: 7 May 2003

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Ayca Altintig

Claremont Colleges - Peter F. Drucker Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 4, 2003

Abstract

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

Suggested Citation

Butler, Alexander W. and Altintig, Z. Ayca, Are They Still Called Late? The Effect of Notice Period on Calls of Convertible Bonds (April 4, 2003). Available at SSRN: https://ssrn.com/abstract=394060 or http://dx.doi.org/10.2139/ssrn.394060

Alexander W. Butler (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Z. Ayca Altintig

Claremont Colleges - Peter F. Drucker Graduate School of Management ( email )

The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States

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