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The lead lag relationship between convertible bonds and stocks: a perspective based on trading mechanism

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  • Liwei Jin
  • Xianghui Yuan
  • Keji Lu
  • Shihao Wang
  • Zhichao Li

Abstract

Based on minute-level high-frequency data, this paper examines the lead-lag relationship between convertible bonds and the stock market by using the thermal optimal path method. It is found that convertible bonds lead the stock market at both index and individual levels. Regression analysis shows that the unique ‘T + 0’ trading mechanism and wider price limits of convertible bonds significantly contribute to their leading effect. Additional analysis shows that the leading effect is significantly reduced when the price limit of convertible bond market is narrowed. Our findings can potentially help regulators to improve and develop the convertible bond market, and also be of value to investors in developing trading strategies.

Suggested Citation

  • Liwei Jin & Xianghui Yuan & Keji Lu & Shihao Wang & Zhichao Li, 2025. "The lead lag relationship between convertible bonds and stocks: a perspective based on trading mechanism," Applied Economics, Taylor & Francis Journals, vol. 57(26), pages 3675-3687, June.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:26:p:3675-3687
    DOI: 10.1080/00036846.2024.2337815
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