| Summary: | 碩士 === 銘傳大學 === 財務金融學系碩士在職專班 === 92 === This paper is to analyze the feasibility of the arbitrage of convertible bond (CB) under the old and new regulations (March, 2002). We examine the conversion and spread arbitrages for CB in respective. Such kinds of arbitrages are realized by buying CB and simultaneously short-selling the corresponding stocks to earn spread profit. The conversion arbitrage is available only when the price of CB is discounted. However, under the new regulation, the space of conversion arbitrage has been vanishing due to the nullification of Entitled certificate. Meanwhile, the conversion arbitrage is not available in the face of compulsory delivering of the shot-selling stocks without the Entitled certificate. The empirical evidence shows that under the old regulation, the conversion arbitrage earns 5.6% on average; however, under the new regulation the profit has reduced to the level of -1.4% on average after the close period. In other words, conversion arbitrage must shun away the date of compulsory buying-back position of short-selling stocks, so it takes two months on average. Nevertheless, under the new regulation, the spread arbitrage has no such a limitation. We can short sell the equal value of stocks to make sure the initial positive spread between CB and the corresponding stocks. Under the new regulation, spread arbitrage for CB need not exercise the conversion and the length of conversion period is only 5 days, therefore it exists no problem of the date of compulsory buying-back position of short-selling stocks. The T-test for the decreasing of the spread is significant under the old and new regulations. With the continuous changes in the CB market, the space of conversion arbitrage has been vanishing. The spread arbitrage focusing on the timing of the convergence of the spread has become the main stream of CB arbitrage.
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