| Since the release of the new refinancing regulations in 2017,China’s convertible bond market has expanded rapidly,with the issue scale and market trading volume of convertible bonds showing explosive growth.The rapid development of the market has been accompanied by high investor enthusiasm,and the price of convertible bonds has been highly volatile,with the market "meltdown wave" constantly staged and some investors suffering heavy losses due to the large price increases and decreases.As a complex financial product that combines the characteristics of both bonds and equities,convertible bonds have a variety of special terms embedded in the product,which poses a challenge for reasonable pricing.Currently,the pricing of convertible bonds has been continuously researched in both theory and practice,starting from the basic elements of convertible bonds.However,the relevant research results focus on the product characteristics and terms constraints,ignoring some of the constraints in the real market,and therefore there are some discrepancies between theoretical pricing and practical pricing.This paper firstly expands the research perspective on investor sentiment in behavioural finance,arguing that convertible bond investors are not only influenced by investor sentiment in the equity market,but also by the combined sentiment from multiple financial sub-markets such as the money market and bond market,thus causing volatility in the trading price of convertible bonds.Based on this,this paper takes a realistic and behavioural finance perspective and considers both the default and liquidity risks that exist in the convertible bond market in the pricing model of convertible bonds,while incorporating into the model the multi-market sentiment factor of investors,so as to optimise the theoretical pricing model of convertible bonds and reduce the difference from the practical price.Another issue of concern in the convertible bond market is the conversion behaviour of investors.Convertible bond investors can choose to convert,continue to hold or sell during the conversion period of the convertible bond.Are there any sentiment factors behind the different behavioural choices?How does the sentiment of different financial sub-markets(currency,bond and stock)affect the conversion behavior of convertible bond investors?In this paper,mathematical modeling,empirical analysis and simulation are used in-depth research on the above issues.The innovative work and research findings of this paper are as follows:First,indicators of investor sentiment in the money market,bond market and across markets are constructed.This paper breaks through the limitations of existing research on investor sentiment focusing on the stock market and constructs comprehensive investor sentiment indicators for different financial sub-markets and cross-markets,which can reflect the sentiment of investors in financial markets in a more comprehensive and objective manner.Secondly,On the basis of analyzing the influence of multi-market investor sentiment on the price of convertible bonds,this paper adds multi-market investor sentiment index into the theoretical pricing model of convertible bonds which takes credit risk and liquidity risk into consideration,revises the existing pricing model of convertible bonds,and narrates the difference between theoretical model and practical price.Thirdly,we analyse convertible bond investors’ conversion behaviour from the perspective of investor sentiment and analyse the interplay between different market sentiments.Through mathematical models and empirical tests,we analyse the influence of investor sentiment in different markets on convertible bond investors’conversion behaviour and find that convertible bond investors’ conversion behaviour is inhibited by money market sentiment and bond market sentiment,while it is positively promoted by stock market sentiment and cross-market combined sentiment,and that there is mutual inhibition of investor sentiment among different financial sub-markets in China.The results of the study confirm the existence of significant"substitution" spillover effects in China’s financial markets from the perspective of investor sentiment.Fourthly,this paper uses Netlogo software to simulate the conversion behaviour of convertible bond investment under different market sentiment and different emotional states,and the simulation gives the change of investors’ conversion rate under single multi-market and cross-market comprehensive optimism and pessimism sentiment.The results of the study show that investors behave more rationally under the influence of cross-market sentiment than when considering only single-market sentiment,and that the influence of sentiment is time-limited,and that investors will gradually "digest" the influence of sentiment as time progresses and return to their rational thinking basis for investment decisions.This provides a theoretical basis for balancing short-term policy stimulus with long-term policy.Fifthly,through the analysis of the transmission and effect of sentiment as an information flow,this paper reveals a problem that has been overlooked in the improvement of China’s convertible bond market mechanism and market regulation:the uniformity and fragmentation of the financial market.Although China’s financial markets are operating independently under separate regulation,there is a close information linkage within them.Based on an analysis of pricing and investor behavior in the convertible bond market,this paper proposes recommendations to promote the development of China’s convertible bond market and a unified macro-prudential regulatory system for the financial system. |
