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Portfolio Selection Effectiveness Based on Absolute Parity Premium: Evidence from Convertible Bond Factor

In: Proceedings of the 8th International Conference on Financial Innovation and Economic Development (ICFIED 2023)

Author

Listed:
  • Haiyi Li

    (Sichuan University, School of Economics)

  • Qianya Ma

    (China Foreign Affairs University, School of International Economics)

  • Hongmin Sun

    (Beijing Wuzi University, School of Accounting)

Abstract

In the past, financial analysis mostly relied on subjective judgment, but with the improvement of the tools brought about by the development of The Times, the use of quantitative tools has become more and more important in financial investment. As an easy to use and expanding computer language, Python is also widely used in quantitative finance. China’s convertible bond market has entered a phase of rapid development since 2017. In this paper, in addition to the traditional research on convertible bond indicators, an innovative research factor of absolute parity premium is cited as a research factor of convertible bonds use Python to back-test and analyze the convertible bond market in the past three years. The results indicate that the absolute parity premium indicator has predictive power for the future return of convertible bonds, and investing in convertible bonds with lower absolute parity premiums can bring significant excess returns. The significance of this paper is to discover and prove the quantitative investment strategy of absolute parity premium bond selection, which provides a new way of thinking for convertible bond investment research.

Suggested Citation

  • Haiyi Li & Qianya Ma & Hongmin Sun, 2023. "Portfolio Selection Effectiveness Based on Absolute Parity Premium: Evidence from Convertible Bond Factor," Advances in Economics, Business and Management Research, in: Yushi Jiang & Guangming Li & Wilson Xinbao Li (ed.), Proceedings of the 8th International Conference on Financial Innovation and Economic Development (ICFIED 2023), pages 24-38, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-142-5_4
    DOI: 10.2991/978-94-6463-142-5_4
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