| Summary: | 碩士 === 國立中興大學 === 財務金融學系 === 93 === Following similar research design of Ammann, Axel and Christian (2003), we consider daily convertible bond prices and their corresponding stock prices available on the Taiwan market for a period of 15 months from January 2, 2004, through March 31, 2005, to investigate whether the underpricing exists. After screening through the liquidity and size orderly, our convertible bond universe consists of 41 issues from 33 issuers with a total of 9264 data points. Using a stock-based binomial-tree model with exogenous credit risk, moreover, we consider: the conversion right and put option of the bondholder, the call option of the issuer, the reset clause and special reset clause. The empirical analysis shows that the theoretical prices of the observed convertible bonds are on average close to 4% higher than the corresponding market prices. The result is consistent with the four subsamples. Particularly, the underpricing of the two subsamples for the convertibles with the 2nd-class reset clause or special reset clause is higher than 4%. Besides, the underpricing for deep in-of-the-money convertibles is the minimum because of the high probability of conversion and the small time value. And the convertibles with a longer maturity tend to be priced more accurately on average, which can plausibly be explained by the difficulty of implementing short-term arbitrage strategies.
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