Option features and price discovery in convertible bonds. Issue 3 (15th December 2022)

• Record Type: Journal Article
• Authors: Jin, Liwei; Yuan, Xianghui; Peiran, Li; Xu, Hailun; Lian, Feng
• Is Part Of: Journal of futures markets. Volume 43:Issue 3(2023)
• Page Start: 384
• Page End: 403
• Publication Date: 2022-12-15
• Subjects: convertible bonds -- lead–lag effect -- panel data -- stock -- thermal optimal path method; Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.22391
• Languages: English
• ISSNs: 0270-7314

Abstract

Abstract: In this paper, we investigate whether the option features in convertible bonds lead to price discovery. On the basis of minute‐level data from January 2019 to December 2021, we find that the convertible bond market contributes to the price discovery of the stock market by using the thermal optimal path method, and that the option features in convertible bonds are an important factor affecting the price discovery ability. Regression analysis shows that the effect of option features remains significant after controlling for a range of variables, such as the size of the convertible bond, the premium rate, information shock, and volatility. In addition, we further explore the impact of the difference in trading regimes between the convertible bond market and the equity market on price discovery.