Short Sales, Price pressure, and the Stock Price Response to Convertible Bond Calls

Publikation: Working paperForskning

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Abstrakt

The announcement of a convertible bond call is associated with an average con- temporaneous abnormal stock price decline of 1.75% and an ensuing price recovery in the conversion period. A price fall and the subsequent recovery suggest price pressure as the explanation for the announcement eect. However, in a perfect capital market the option to convert is not exercised early and hence, the increase in the number of shares outstanding does not occur at the announcement date. Instead, this paper ar- gues and provides evidence that hedging-induced short selling is causing at least part of the short-run price pressure.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverCentre for Analytical Finance. Aarhus School of Business. University of Aarhus
Antal sider28
StatusUdgivet - 2003
NavnWorking Paper Series / Centre for Analytical Finance
Nummer164
ISSN1398-6163

Emneord

  • Aktiekurser
  • Hedging
  • Convertibles

Citationsformater