Convertible bond arbitrage, liquidity externalities, and stock prices

• 成果类型: Article
• 署名作者: Choi, Darwin; Getmansky, Mila; Tookes, Heather
• 署名单位: Yale University; University of Massachusetts System; University of Massachusetts Amherst
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2008.02.008
• 发表日期: 2009
• 页码: 227-251
• 关键词: Convertible bond arbitrage; liquidity; market efficiency; Hedge funds

摘要

In the context of convertible bond issuance, we examine the impact of arbitrage activity on underlying equity markets. In particular, we use changes in equity short interest following convertible bond issuance to identify convertible bond arbitrage activity and analyze its impact on stock market liquidity and prices for the period 1993 to 2006. There is considerable evidence of arbitrage-induced short selling resulting from issuance. Moreover, we find strong evidence that this activity is systematically related to liquidity improvements in the stock. These results are robust to controlling for the potential endogeneity of arbitrage activity. (C) 2008 Elsevier B.V. All rights reserved.