Dynamic Arbitrageurs’ Long-Run Impacts on Convertible Bond Issuers’ Stock Prices

Abstract

I examine convertible bond arbitrageurs’ long-run impact on convertible bond issuers’ stock prices. I find a negative relation between arbitrage activity around convertible bond issues and convertible bond issuers’ long-run stock returns. Average three-year holding period return of convertible bond issuers with no-arbitrage activity around their convertible bond issues is two times larger than that of convertible bond issuers with arbitrage activity around their convertible bond issues. Overall, I show that convertible bond arbitrageurs’ price impact is not limited to short-term [1], but it also has a long-term component.