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dc.contributor.authorAgarwal, Vikasen
dc.contributor.authorFung, William H.en
dc.contributor.authorLoon, Yee Chengen
dc.contributor.authorNaik, Narayan Y.en
dc.date.accessioned2012-04-25-
dc.date.accessioned2012-05-02T15:44:46Z-
dc.date.available2012-05-02T15:44:46Z-
dc.date.issued2004-
dc.identifier.urihttp://hdl.handle.net/10419/57723-
dc.description.abstractIn this paper, we identify and document the empirical characteristics of the key drivers of convertible arbitrage as a strategy and how they impact the performance of convertible arbitrage hedge funds. We show that the returns of a buy-and-hedge strategy involving taking a long position in convertible bonds (CBs) while hedging the equity risk alone explains a substantial amount of these funds' return dynamics. In addition, we highlight the importance of non-price variables such as extreme market-wide events and the supply of CBs on performance. Out-ofsample tests provide corroborative evidence on our model's predictions. At a more micro level, larger funds appear to be less dependent on directional exposure to CBs and more active in shorting stocks to hedge their exposure than smaller funds. They are also more vulnerable to supply shocks in the CB market. These findings are consistent with economies of scale that large funds enjoy in accessing the stock loan market. However, the friction involved in adjusting the stock of risk capital managed by a large fund can negatively impact performance when the supply of CBs declines. Taken together, our findings are consistent with convertible arbitrageurs collectively being rewarded for playing an intermediation role of funding CB issuers whilst distributing part of the equity risk of CBs to the equity market.en
dc.language.isoengen
dc.publisher|aUniversity of Cologne, Centre for Financial Research (CFR) |cCologneen
dc.relation.ispartofseries|aCFR Working Paper |x04-03en
dc.subject.jelG10en
dc.subject.jelG19en
dc.subject.jelG23en
dc.subject.ddc330en
dc.subject.keywordHedge fundsen
dc.subject.keywordConvertible Bondsen
dc.subject.keywordConvertible arbitrageen
dc.subject.keywordSupplyen
dc.subject.keywordRisk Factorsen
dc.titleRisk and return in convertible arbitrage: Evidence from the convertible bond market-
dc.typeWorking Paperen
dc.identifier.ppn699917603en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen
dc.identifier.repecRePEc:zbw:cfrwps:0403en

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