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New Evidence on the Announcement Effect of Convertible and Exchangeable Bonds

30 Pages Posted: 13 May 2004  

Manuel Ammann

University of St. Gallen - School of Finance

Martin Fehr

University of St. Gallen - Swiss Institute of Banking and Finance

Ralf Seiz

University of St. Gallen - Swiss Institute of Banking and Finance

Date Written: 2006

Abstract

This study investigates the announcement and issuance effects of offering convertible bonds and exchangeable bonds using data for the Swiss and German market during January 1996 and May 2003. The analysis shows that announcement effects of convertible bonds and exchangeable bonds are associated with significantly negative abnormal returns. Unlike previous studies, it also investigates the effect of the market return of the announcement effect and finds that the negative abnormal returns are significantly more pronounced when previous market returns have been negative. Furthermore, we analyze the relation between the announcement effects and equity components by controlling for the equity signal sent to the market. We find the size of the equity component of an issue to have a strong influence on the announcement effect for convertible but not for exchangeable securities and offer an explanation for this difference.

Keywords: Convertible bonds, exchangeable debt, event study, announcement effects

JEL Classification: G12, G14, G15, G32

Suggested Citation

Ammann, Manuel and Fehr, Martin and Seiz, Ralf, New Evidence on the Announcement Effect of Convertible and Exchangeable Bonds (2006). EFMA 2004 Basel Meetings Paper; Journal of Multinational Financial Management, Vol. 16, No. 1, pp. 43-63, 2006. Available at SSRN: https://ssrn.com/abstract=499767 or http://dx.doi.org/10.2139/ssrn.499767

Manuel Ammann (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Martin Fehr

University of St. Gallen - Swiss Institute of Banking and Finance

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland

Ralf Seiz

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland

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