New Evidence on the Market Impact of Convertible Bond Issues in the U.S.

45 Pages Posted: 14 May 2004

See all articles by Bala Arshanapalli

Bala Arshanapalli

Indiana University Northwest - School of Business & Economics

Lorne N. Switzer

Concordia University, Quebec - Department of Finance

Frank J. Fabozzi

EDHEC Business School

Guillaume Gosselin

Concordia University

Date Written: January 2004

Abstract

This study provides new evidence on the market impact of new issues of convertible bonds of U.S. listed firms. We examine on the market reaction surrounding the announcement dates and the issue dates of convertible bonds. The evidence suggests that firms experience negative abnormal returns around the announcement of new issues of convertible bonds. Abnormal returns are found to be a function of firm market value, price-to-book ratio, issue size, as well as the state of the overall market. Simulations using convertible arbitrage strategies suggests that investors could take advantage of these negative abnormal returns by going long on the firm's convertible bond and short on the firm's stock at the issue date.

Suggested Citation

Arshanapalli, Bala and Switzer, Lorne N. and Fabozzi, Frank J. and Gosselin, Guillaume, New Evidence on the Market Impact of Convertible Bond Issues in the U.S. (January 2004). Available at SSRN: https://ssrn.com/abstract=492803 or http://dx.doi.org/10.2139/ssrn.492803

Bala Arshanapalli

Indiana University Northwest - School of Business & Economics ( email )

3400 Broadway
Gary, IN 46408
United States
219-980-6919 (Phone)

Lorne N. Switzer (Contact Author)

Concordia University, Quebec - Department of Finance ( email )

John Molson School of Business
Montreal, Quebec H3G1M8
Canada
514-848-2424, x2960 (Phone)
514-848-4500 (Fax)

Frank J. Fabozzi

EDHEC Business School ( email )

France
215 598-8924 (Phone)

Guillaume Gosselin

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

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