Szymanowska, M., Ter Horst, J. and Veld, C. (2009) Reverse convertible bonds analyzed. Journal of Futures Markets, 29(10), pp. 895-919. (doi: 10.1002/fut.20397)
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Abstract
We study the pricing of reverse convertible (RC) bonds. These are bonds that carry high coupon payments. In exchange, the issuer has an option at the maturity date to either redeem the bonds in cash or to deliver a pre-specified number of shares. We find that Dutch plain vanilla and knock-in RC bonds are, on average, overpriced by almost 6%. This overpricing is confirmed in a model-free analysis with respect to option- and bond-pricing models. We find that rational factors explain 23% of the documented overpricing. In addition, we find that the combination of financial marketing, framing, and the representativeness bias further increases our ability to explain the documented overpricing to more than 35%.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Veld, Professor Chris |
| Authors: | Szymanowska, M., Ter Horst, J., and Veld, C. |
| College/School: | College of Social Sciences > Adam Smith Business School > Accounting and Finance |
| Journal Name: | Journal of Futures Markets |
| ISSN: | 0270-7314 |
| ISSN (Online): | 1096-9934 |
| Published Online: | 27 July 2009 |
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