Simulating convertible bond arbitrage portfolios
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Accepted Version
Date
2008-07-21
Authors
Hutchinson, Mark C.
Gallagher, Liam A.
Journal Title
Journal ISSN
Volume Title
Publisher
Routledge - Taylor & Francis Group
Published Version
Abstract
The recent growth in interest in convertible bond arbitrage (CBA) has predominantly come from the hedge fund industry. Past empirical evidence has shown that a CBA strategy generates positive monthly abnormal risk-adjusted returns. However, these studies have focused on hedge fund returns which exhibit instant history bias, selection bias, survivorship bias and smoothing. This article replicates the core underlying CBA strategy to generate an equally weighted and market capitalization daily CBA return series free of these biases, for the period 1990 through 2002. These daily series also capture important short-run price dynamics that previous studies have ignored.
Description
Keywords
Convertible bond arbitrage (CBA) , Arbitrage , Convertible bonds , Hedge funds
Citation
Hutchinson, M. C. and Gallagher, L. A. (2008) 'Simulating convertible bond arbitrage portfolios', Applied Financial Economics, 18(15), pp. 1247-1262. doi: 10.1080/09603100701604217
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Copyright
© 2008, Taylor & Francis. All rights reserved. This is an Accepted Manuscript of an item published by Taylor & Francis in Applied Financial Economics on 21 July 2008, available online: https://doi.org/10.1080/09603100701604217