Price Adjustment Delays and Arbitrage Costs: Evidence from the Behavior of Convertible Preferred Prices

21 Pages Posted: 19 May 2006

See all articles by Ji-Chai Lin

Ji-Chai Lin

Hong Kong PolyU

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics

Abstract

Price adjustment delays occur between in-the-money convertible preferred stock prices and common stock prices. Convertible preferred prices systematically deviate from the prices predicted from their conversion relations with common stocks. The price predictability stems from price changes in the underlying common stocks leading the price changes in the convertible preferred stocks by up to nine hours. Cross-sectionally, about 70 percent of the variation in the unsigned size of the price deviations is explained by proxies for costs of arbitrage.

Keywords: arbitrage costs, price delays, convertible preferred

JEL Classification: G12, G14

Suggested Citation

Lin, Ji-Chai and Rozeff, Michael S., Price Adjustment Delays and Arbitrage Costs: Evidence from the Behavior of Convertible Preferred Prices. Journal of Financial and Quantitative Analysis, Vol. 30, No. 1, March 1995. Available at SSRN: https://ssrn.com/abstract=903217

Ji-Chai Lin (Contact Author)

Hong Kong PolyU ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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