2014-02-01
Why are conversion-forcing call announcements associated with negative wealth effectsα
Publication
Publication
Journal of Corporate Finance , Volume 24 p. 149- 157
We analyze call announcement returns taking into account two recent developments in the convertible bond market: the inclusion of dividend protection clauses in convertibles' terms, and the high fraction of convertible issues purchased by hedge funds. Calls of dividend-protected convertible bonds are predictable, yet we still observe a negative stock price reaction that cannot be explained by signaling. Greater hedge fund involvement prior to a call means less short selling in response to the call and we document a reduced price reaction. We conclude that price pressure and not signaling underlies the negative announcement effect of convertible bond calls.
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doi.org/10.1016/j.jcorpfin.2013.10.003, hdl.handle.net/1765/60888 | |
ERIM Top-Core Articles | |
Journal of Corporate Finance | |
Organisation | Erasmus Research Institute of Management |
Grundy, B., Veld, C., Verwijmeren, P., & Zabolotnyuk, Y. (2014). Why are conversion-forcing call announcements associated with negative wealth effectsα. Journal of Corporate Finance, 24, 149–157. doi:10.1016/j.jcorpfin.2013.10.003 |