Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • PA Reports
  • Submit an article
  • More
    • About JAI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • CAIA Member Login
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • LinkedIn
  • Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Alternative Investments
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Alternative Investments

The Journal of Alternative Investments

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • PA Reports
  • Submit an article
  • More
    • About JAI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • CAIA Member Login
  • LinkedIn
  • Twitter
Article

Market Efficiency and Returns from Convertible Bond Hedging and Arbitrage Strategies

Frank J Fabozzi, Jinlin Liu and Lorne N Switzer
The Journal of Alternative Investments Winter 2009, 11 (3) 37-64; DOI: https://doi.org/10.3905/JAI.2009.11.3.037
Frank J Fabozzi
is a professor in the practice of finance at Yale School of Management in New Haven, CT.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: frank.fabozzi@yale.edu
Jinlin Liu
is a doctoral candidate in finance at John Molson School of Business at Concordia University in Montreal, Quebec, Canada.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: jinli_li@jmsb.concordia.ca
Lorne N Switzer
is an associate dean, research, and Van Berkom endowed chair of small-cap equities at John Molson School of Business, Concordia University in Montreal, Quebec, Canada.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: switz@jmsb.concordia.ca
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 

Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

This article explores the returns of convertibles as well as the returns of a large array of convertible hedging and arbitrage strategies. Market efficiency tests are performed using various portfolios that comprise opposite long bonds and short underlying equity positions, the returns and risks of convertible bond convergence hedging portfolios, and combinations of convertible bonds, corporate bonds, and options of the same issuer. Hedged positions based on the characteristics of the bonds are shown to provide superior absolute and relative returns. A bullish gamma hedging strategy put on at the time of the issuance of the convertibles and a delta-neutral strategy with larger delta change tolerance are shown to be particularly advantageous. These trading strategies are found to be robust to alternative specifications of transaction costs, leverage effects, and alternative parameter inputs. In summary, market commentators who predict the demise of such opportunities may be wrong.

  • © 2009 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Alternative Investments
Vol. 11, Issue 3
Winter 2009
  • Table of Contents
  • Index by author
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Alternative Investments.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Market Efficiency and Returns from Convertible Bond Hedging and Arbitrage Strategies
(Your Name) has sent you a message from The Journal of Alternative Investments
(Your Name) thought you would like to see the The Journal of Alternative Investments web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Market Efficiency and Returns from Convertible Bond Hedging and Arbitrage Strategies
Frank J Fabozzi, Jinlin Liu, Lorne N Switzer
The Journal of Alternative Investments Dec 2008, 11 (3) 37-64; DOI: 10.3905/JAI.2009.11.3.037

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Market Efficiency and Returns from Convertible Bond Hedging and Arbitrage Strategies
Frank J Fabozzi, Jinlin Liu, Lorne N Switzer
The Journal of Alternative Investments Dec 2008, 11 (3) 37-64; DOI: 10.3905/JAI.2009.11.3.037
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • DATA DESCRIPTION
    • METHODOLOGY
    • THE RETURN CHARACTERISTICS OF PURE LONG CBs/UNDERLYING STOCKS
    • SIMPLE ARBITRAGE STRATEGY RETURNS
    • DELTA-NEUTRAL HEDGE
    • GAMMA HEDGE
    • IMPLIED VOLATILITY CONVERGENCE HEDGE
    • CREDIT SPREAD CONVERGENCE HEDGE
    • CALL OPTION HEDGE
    • CAPITAL STRUCTURE HEDGE
    • CREDIT DEFAULT SWAP HEDGE
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar

More in this TOC Section

  • Editor’s Letter
  • Practical Applications of A Performance Update—Hedge Funds versus Hedged Mutual Funds: An Examination of Equity Long—Short Funds
  • Practical Applications of Cryptocurrencies as an Asset Class? An Empirical Assessment
Show more Article
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 13 1600
 
NEW YORK
41 Madison Avenue, 20th Floor, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • LinkedIn
  • Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1520-3255 | E-ISSN: 2168-8435

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies