Intermediary frictions and convertible bond pricing

Bruce D. Grundy, Patrick Verwijmeren*, Antti Yang

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

Buy-and-hedge intermediaries are important investors in the convertible bond market as they intermediate between firms that require capital quickly and investors requiring time to assess the security. Their strategy requires them to manage the trade-offs involved with the costs and benefits of hedging. We find that prices of convertible securities reflect the costs that intermediaries incur when managing their positions. Especially cross-sectional and within-bond variation of intermediaries’ loan costs helps explain variation in convertible bond underpricing.

Original languageEnglish
Article number101085
JournalJournal of Financial Intermediation
Volume58
DOIs
Publication statusPublished - Apr 2024

Bibliographical note

Publisher Copyright: © 2024 The Authors

Research programs

  • ESE - ECO

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