Call Me Maybe: Corporate Bond Prices Upon Missed Call Opportunities

60 Pages Posted: 28 Jul 2023 Last revised: 25 Mar 2024

See all articles by Alexey Ivashchenko

Alexey Ivashchenko

VU University Amsterdam

Michael Rockinger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Date Written: March 18, 2024

Abstract

In a sample of discretely callable corporate bonds, we find excess returns of approximately 40 b.p. realized on the release of the issuer's decision to call or not to call. The bonds that should have been called (in-the-money bonds) but are not called contribute the most to the bond price jump. We attribute the jump to the revaluation of an embedded bond call option due to a missed exercise opportunity. Investors sell callable bonds prior to the release of the issuer's decision and later buy back not-called, in-the-money bonds, leaving the price jump in bond dealers' pockets.

Keywords: Callable bonds, call dates, option, exercise, moneyness, trading volume

JEL Classification: G12, G14

Suggested Citation

Ivashchenko, Alexey and Rockinger, Georg Michael, Call Me Maybe: Corporate Bond Prices Upon Missed Call Opportunities (March 18, 2024). Available at SSRN: https://ssrn.com/abstract=4517286 or http://dx.doi.org/10.2139/ssrn.4517286

Alexey Ivashchenko (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

HOME PAGE: http://ivasche.com

Georg Michael Rockinger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 728 3348 (Phone)
+41+21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/mrockinger

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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