Empirical Study on the Premium Rate of First-day Traded Price of Convertible Bond
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Abstract:
Clauses-designing of convertible bond is the main object of this article. Its final effect upon exchange market is analyzed by an empirical study, which ultimately reveals the relationship between clause-designing and the premium rate of the price on the first day. The authors select 22 pieces of comparable convertible bonds in domestic market as a sample pool, and design a regression model. Results demonstrate that market price of convertible bond is primarily determined by its value. In this case, proper designing in coupon rate, duration, or setting additional clauses, such as interest compensation clause and unconditional redemption clause, could significantly improve the premium of price on the first day. Moreover, it is precise to appraise the premium of price on the first day with the regression model, which proves that this model turns out to be a valuable reference for investors.
