Resource title

Short sales, price pressure, and the stock price response to convertible bond calls

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Resource description

The announcement of a convertible bond call is associated with an average con-temporaneous abnormal stock price decline of 1.75% and an ensuing price recovery inthe conversion period. A price fall and the subsequent recovery suggest price pressureas the explanation for the announcement eect. However, in a perfect capital marketthe option to convert is not exercised early and hence, the increase in the number ofshares outstanding does not occur at the announcement date. Instead, this paper ar-gues and provides evidence that hedging-induced short selling is causing at least partof the short-run price pressure.Key words: Convertible bond calls; Hedging; Short selling; Price pressure; UnderwritingJEL Classication: G14; G24; G32

Resource author

Ken Bechmann

Resource publisher

Resource publish date

Resource language

eng

Resource content type

application/pdf

Resource resource URL

http://hdl.handle.net/10398/7165

Resource license

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