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Post by Sapphire Capital on Nov 6, 2008 23:02:50 GMT 4
Convertible Bond Arbitrageurs as Suppliers of Capital Darwin Choi Yale School of Management Mila Getmansky University of Massachusetts at Amherst - Department of Finance & Operations Management Brian J. Henderson George Washington University - Department of Finance Heather Tookes Yale School of Management July 31, 2008 Yale ICF Working Paper No. 0820 Abstract: This paper examines the potential role of convertible bond arbitrageurs as suppliers of capital to issuers. We link the time series of aggregate convertible bond issuance to measures of capital supply: convertible bond arbitrage hedge fund flows, returns, and a proxy for arbitrageurs' use of leverage. We find that issuance is positively and significantly related to increases in all three of these measures. In order to interpret this finding, we employ an identification strategy that uses price-quantity pairs to distinguish changes in supply that are due to shifts in convertible bond market supply conditions versus demand conditions. Using fund flows into convertible bond arbitrage hedge funds as a supply proxy, we find significant sensitivity of issuance to both supply- and demand-driven flows; however, variation in demand conditions appears to be most important. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1191822_code223089.pdf?abstractid=1191822&mirid=1
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