Skip to main content
alt

Please enter a keyword and click the arrow to search the site

Or explore one of the areas below

Risk and Return in Convertible Arbitrage: Evidence from the Convertible Bond Market

Subject

Finance

Publishing details

BNP Paribas Hedge Fund Centre Working Paper Series

Authors / Editors

Agarwal V;Naik N Y;et al.

Biographies

Narayan Naik

Publication Year

2006

Abstract

This paper analyzes the risk-return characteristics of convertible arbitrage (CA) strategy. Using data on US and Japanese convertible bonds (CBs), we create three basic strategies commonly employed by arbitrageurs in the CB market. We compute returns on these strategies and show that they explain a significant proportion of the variation in returns of CA hedge funds. We provide empirical results showing how CA hedge funds respond to extreme market events such as LTCM crisis. Finally, we demonstrate that the risk-adjusted returns of CA hedge funds are affected by mismatches between supply of and demand for CBs. After adjusting for these mismatches, empirical evidence reveals no abnormal returns accruing to CA hedge funds. Our findings are consistent with arbitrageurs acting as liquidity providers to the CB markets.

Publication Notes

This paper has been revised and replaced by HF-0??

Publication Research Centre

Hedge Fund Centre

Series Number

HF-020

Series

BNP Paribas Hedge Fund Centre Working Paper Series

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox

×

Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: https://london.edu/my-profile-preferences or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.