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Korean Journal of Financial Studies 2015;44(5):913-945.
Published online December 31, 2015.
The Determinants of CB Price Movements: Empirical Verification for Theoretical Prediction and Implications on CB Market Efficiency
Ki Beom Binh, Mookwon Jung, Seongsoon Cho
전환사채(CB) 가격 결정요인 분석
빈기범, 정무권, 조성순
Abstract
The convertible bonds (CBs) are so-called hybrid securities with the properties of both equities and debts. It has been an important subject in academic schloars as well as in practitioners. This paper primarily examines the dynamics of CB price using the secondary market CB data that are hard to obtain. More specifically, we investigate whether and how the stock price of issuing firm and the market interest rate affect the movement of CB price. We also control for the parity of CB, the interaction between stock price and bond price, credit ratings of issuing firm, and the maturity of CB. Above all, we use the linear spline model to capture the different responses of CB price (on stock and bond price) depending on the range of parity. We find the positive relationships between the stock and CB prices and between government bond and CB prices. The response of CB price on stock price is more sensitive as the parity level is higher, but the response of CB price on bond price is more sensitive as the parity level is lower. Moreover, it turns out that the interactions between stock and bond price and between stock price and credit ratings show reinforcement or interference effects depending on the parity level. The overall empirical findings in this paper seem to be consistent with the theoretical prediction for CB in which an option (conversion right) is embedded. Moreover, our findings suggest that the domestic CB market is still efficient in spite of real-world incompleteness, such as an illiquid trading. Additionally, we discuss the legal and actual substantiality of CBs, as well as the policy implications of our results.
Key Words: 국채가격,상법,전환사채,주가,패러티,CB,Commercial Law,Government Bond Price,Parity,Stock Price
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