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

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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 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 argues and provides evidence that hedging-induced short selling is causing at least part of the short-run price pressure.
Original languageEnglish
Place of PublicationAarhus
PublisherCentre for Analytical Finance. Aarhus School of Business. University of Aarhus
Number of pages28
Publication statusPublished - 2003
SeriesWorking Paper Series / Centre for Analytical Finance


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

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