Convertible bond arbitrage: Risk and return

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dc.contributor.authorHutchinson, Mark C.
dc.contributor.authorGallagher, Liam A.
dc.contributor.funderIrish Research Councilen
dc.contributor.funderScience Foundation Irelanden
dc.date.accessioned2021-10-14T14:08:27Z
dc.date.available2021-10-14T14:08:27Z
dc.date.issued2010-02-01
dc.date.updated2021-10-13T14:27:21Z
dc.description.abstractThis paper specifies a simulated convertible bond arbitrage portfolio to characterise the risks in convertible bond arbitrage. For comparison the risk profile of convertible bond arbitrage hedge fund indices at both monthly and daily frequencies is also examined. Results indicate that convertible bond arbitrage is positively related to default and term structure risk factors. These risk factors are augmented with the simulated convertible bond arbitrage portfolio, mimicking a passive investment in convertible bond arbitrage, to assess the risk and return of individual hedge funds. We provide estimates of the performance of two hedge fund indices (an equally weighted and value weighted index) and a sample of convertible bond arbitrage hedge funds using a factor model methodology. Lagged and contemporaneous observations of the risk factors are specified, controlling for illiquidity in the securities held by funds. Our results cover two time periods. Initially we find evidence of abnormal risk adjusted returns in the individual hedge fund data and the equally weighted hedge fund index and no evidence of abnormal risk adjusted returns in the value weighted hedge fund index. When we examine performance during the credit crisis of 2007 and 2008 we find evidence of negative abnormal returns amongst individual hedge funds and the hedge fund indices.en
dc.description.statusPeer revieweden
dc.description.versionAccepted Versionen
dc.format.mimetypeapplication/pdfen
dc.identifier.citationHutchinson, M. C. and Gallagher, L. A. (2010) 'Convertible bond arbitrage: Risk and return', Journal of Business Finance and Accounting, 37(1/2), pp. 206-241. doi: 10.1111/j.1468-5957.2009.02178.xen
dc.identifier.doi10.1111/j.1468-5957.2009.02178.xen
dc.identifier.eissn1468-5957
dc.identifier.endpage241en
dc.identifier.issn0306-686X
dc.identifier.issued1/2en
dc.identifier.journaltitleJournal of Business Finance and Accountingen
dc.identifier.startpage206en
dc.identifier.urihttps://hdl.handle.net/10468/12103
dc.identifier.volume37en
dc.language.isoenen
dc.publisherJohn Wiley & Sons, Inc.en
dc.relation.projectinfo:eu-repo/grantAgreement/SFI/SFI Principal Investigator Programme (PI)/07/MI/008/IE/Edgeworth Centre for Financial Mathematics/en
dc.rights© 2010, the Authors. This is the peer reviewed version of the following article: Hutchinson, M. C. and Gallagher, L. A. (2010) 'Convertible bond arbitrage: Risk and return', Journal of Business Finance and Accounting, 37(1/2), pp. 206-241, doi: 10.1111/j.1468-5957.2009.02178.x, which has been published in final form at: https://doi.org/10.1111/j.1468-5957.2009.02178.x This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.en
dc.subjectArbitrageen
dc.subjectConvertible bondsen
dc.subjectTradingen
dc.subjectHedge fundsen
dc.subjectFactor modelsen
dc.titleConvertible bond arbitrage: Risk and returnen
dc.typeArticle (peer-reviewed)en
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