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Convertible Bond Arbitrageurs as Suppliers of Capital

Authors Choi, Darwin
Getmansky, Mila
Henderson, Brian
Tookes, Heather
Issue Date 2010
Source Review of financial studies , v. 23, (6), 2010, JUN, p. 2492-2522
Summary This article examines the potential impact of capital supply on security issuance. We focus on the role of convertible bond arbitrageurs as suppliers of capital to convertible bond issuers. We estimate a simultaneous equations model of demand and supply of convertible bond capital, linking 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 supply measures. To provide further interpretation, we use the September/October 2008 short-selling ban as a natural experiment to examine the impact of an exogenous shock to the supply of capital from arbitrageurs. Results from both empirical approaches provide evidence that the supply of capital from convertible bond arbitrageurs impacts issuance.
ISSN 0893-9454
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
Language English
Format Article
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