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

Research output: Contribution to journalJournal articleResearchpeer-review


The announcement of a convertible bond call is associated with an average contemporaneous 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 effect. However, in general 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 argues and provides evidence that hedging-induced short selling causes at least part of the short-run price pressure.
Original languageEnglish
JournalJournal of Financial Markets
Issue number4
Pages (from-to)427-451
Publication statusPublished - 2004


  • Convertible bond calls
  • Hedging
  • Short selling
  • Price pressure
  • Underwriting

Cite this