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Title: Convertible bond arbitrageurs as suppliers of capital
Authors: Choi, Darwin
Getmansky, Mila
Henderson, Brian
Tooks, Heather
Keywords: Convertible bonds
Capital supply
Convertible bond arbitrageurs
Security issuance
Issue Date: Jun-2010
Citation: Review of financial studies, 23(6), p. 2492-2522, June 2010
Abstract: This paper examines the potential role of convertible bond arbitrageurs as suppliers of capital to issuers. We link the time series of aggregate convertible bond issuance to measures of capital supply: convertible bond arbitrage hedge fund flows, returns, and a proxy for arbitrageurs’ use of leverage. We find that issuance is positively and significantly related to increases in all three of these measures. In order to interpret this finding, we employ an identification strategy that uses price-quantity pairs to distinguish changes in supply that are due to shifts in convertible bond market supply conditions versus demand conditions. Using fund flows into convertible bond arbitrage hedge funds as a supply proxy, we find significant sensitivity of issuance to both supply- and demand-driven flows; however, variation in demand conditions appears to be most important.
Rights: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Review of Financial Studies following peer review. The definitive publsher-authenticated version Review of Financial Studies, 23(6), p. 2492-2522, June 2010 is available online at
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