The buyers’ perspective on security design: Hedge funds and convertible bond call provisions

Grundy, B. D. and Verwijmeren, P. (2018) The buyers’ perspective on security design: Hedge funds and convertible bond call provisions. Journal of Financial Economics, 127(1), pp. 77-93. (doi: 10.1016/j.jfineco.2017.11.003)

143927.pdf - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.



We provide evidence that security design reflects the interplay of capital supplier and security issuer preferences. While call provisions have historically been the default option in convertible security design, only a minority of post-2005 issues are callable. Because hedge funds dominate the market for new convertibles today and because convertible arbitrage is less risky without callability, the recent diminution in the frequency of call provisions in new convertible bond issues illustrates the importance of the preferences of the suppliers of capital in security design.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Verwijmeren, Professor Patrick
Authors: Grundy, B. D., and Verwijmeren, P.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Journal of Financial Economics
ISSN (Online):1879-2774
Published Online:17 November 2017
Copyright Holders:Copyright © 2017 Elsevier B.V.
First Published:First published in Journal of Financial Economics 127(1): 77-93
Publisher Policy:Reproduced in accordance with the publisher copyright policy

University Staff: Request a correction | Enlighten Editors: Update this record