Convertible Bonds Undervalued By The Market Value Of Empirical Analysis

The thesis investigates pricing of China's convertible bonds, using weekly data of the 26 convertible bonds traded in Shenzhen and Shanghai Stock Exchange from November 26th, 2004 to February 9th, 2007. The empirical analysis shows that the sample has an average underpricing of 11.06%. In addition, the general trend of underpricing is in line with the trend of stock market. After a further analysis of the empirical results, the thesis concludes that there is no obvious linear relationship between the underpricing of convertible bonds and their coupon rates in China. Furthermore, the thesis finds a significant positive linear relationship between underpricing and the time to maturity and a significant negative relationship between underpricing and conversion premium. However, there is not any linear relationship between underpricing and moneyness of convertible bonds in China. In fact, while the market prices of deep-in-the-money bonds and deep-out-of-money bonds are quite close to the theoretical prices, bonds with other moneyness are underpriced. Moreover, the in-the-money bonds are underpriced by the highest degree.