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Option features and price discovery in convertible bonds

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  • Liwei Jin
  • Xianghui Yuan
  • Li Peiran
  • Hailun Xu
  • Feng Lian

Abstract

In this paper, we investigate whether the option features in convertible bonds lead to price discovery. On the basis of minute‐level data from January 2019 to December 2021, we find that the convertible bond market contributes to the price discovery of the stock market by using the thermal optimal path method, and that the option features in convertible bonds are an important factor affecting the price discovery ability. Regression analysis shows that the effect of option features remains significant after controlling for a range of variables, such as the size of the convertible bond, the premium rate, information shock, and volatility. In addition, we further explore the impact of the difference in trading regimes between the convertible bond market and the equity market on price discovery.

Suggested Citation

  • Liwei Jin & Xianghui Yuan & Li Peiran & Hailun Xu & Feng Lian, 2023. "Option features and price discovery in convertible bonds," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(3), pages 384-403, March.
    • Handle: RePEc:wly:jfutmk:v:43:y:2023:i:3:p:384-403
    DOI: 10.1002/fut.22391
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    Cited by:

    1. Chen, Zhiyu & Xu, Yun & Wang, Yu, 2023. "Can convertible bond trading predict stock returns? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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