| Summary: | 碩士 === 國立中山大學 === 財務管理學系研究所 === 96 === Due to the characteristics of convertible bond, the issuing volumes are smaller than stocks and the investors are mostly institutional investors. Therefore, the turnover and the market liquidity of convertible bond are lower than those of stock market. The past literature indicate that the reaction of corporate bond to the fundamental information falls behind the stock, therefore, the price change of corporate bond always lag behind that of stock market. Moreover, the extra right of convertible bond compare to corporate bond is the convertible option in exchange for stocks, that also causes the relation between the stocks and the convertible is much closer than the normal corporate bond. The motivation of this study is to take advantage of the co-movement relation between these two markets to discover the profit opportunities of investment strategy.
As a result, the purpose of this study is to investigate the prediction of the convertible bond and the reaction of the market information. Firstly, I try to verify momentum effect or overreaction effect in convertible bond is significant. Second, I apply the VAR model and Granger model to analyze the return relationship between convertible bonds and stocks, and to formulate our strategies by predicting the return of convertible bond from the lagged return of stocks. At the end, I analyze the performance of strategy in order to discover the best timing of buying convertible bonds for investors.
Our empirical study exhibits there has no momentum effect in Taiwan convertible bonds market. Conversely, we discover the presence of overreaction effect but it is insignificant. Moreover, it’s effective to predict the return of convertible bond by using the stocks return, otherwise it’s not. Finally, the strategy of using the stock return in predicting the return of convertible bond can earn abnormal return without considering the transaction cost. On the contrary, the performance of using the return of convertible bond in predicting the stock return is insignificant. Our results demonstrate that we can refer to the past literature about “the reaction of corporate bond to the fundamental information of companies falls behind the stock” to invest in convertible bond profitably. In conclusion, investors can follow our empirical framework and result to forecast the price trend of the convertible bond by referring the stock price.
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