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The optimal call policy for convertible bonds: Is there a market memory effect?

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  • Chris Veld
  • Yuriy Zabolotnyuk

Abstract

This article examines the market memory effect in convertible bond markets. We look at the pricing of convertible bonds issued after the original issuer redeemed previous issues without giving an opportunity for investors to benefit from bond value appreciation. We find evidence that the market underprices new convertible bond issues of firms that called their previous convertible bonds early compared with new convertibles bonds of firms that called their previous convertibles late.

Suggested Citation

  • Chris Veld & Yuriy Zabolotnyuk, 2012. "The optimal call policy for convertible bonds: Is there a market memory effect?," Applied Economics Letters, Taylor & Francis Journals, vol. 19(7), pages 661-664, May.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:7:p:661-664
    DOI: 10.1080/13504851.2011.593494
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    Cited by:

    1. Bruce D. Grundy & Patrick Verwijmeren, 2012. "Dividend-Protected Convertible Bonds and the Disappearance," Tinbergen Institute Discussion Papers 12-060/2/DSF37, Tinbergen Institute.
    2. Liao, Yulu & Huang, Paoyu & Ni, Yensen, 2022. "Convertible bond issuance volume, capital structure, and firm value," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).

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