The Research To The Influential Factors Of Convertible Bonds To Underestimate Rate

The bond market only take a small part of our financial market’s share, which definitely lead into the unbalance of financial market structure. Moreover, most company consider issuing equity instead of bond when they need capital for further development and they also take equity as free money from investors. And this behavior is not suitable for the sustainable development of financial market in china. And the appearance of convertible bond is a means to solve this problem because it has both character of stock and bond and can meet the demand of different types of investors. And for investors, getting a thorough understanding of the pricing mechanism of convertible bond and the reason for its mispricing is important. This thesis investigate the pricing of china’s convertible bonds, using daily data from May25th,2007to December30th,2011. The empirical analysis shows that the sample has an average under-pricing of2.58%. In addition, the general trend of under-pricing rate moves in the opposite direction with stock index in the long run. After further analysis of empirical results, we get the conclusion that there is positive relationship between the time to maturity and the under-pricing rate in china. Furthermore, conversion premium, bond premium and coupon rate all have negative relationship with under-pricing rate. Nevertheless, there is no linear relationship between under-pricing rate and the state of option embedded in convertible bond. In fact, the market prices of deep-out-of-the-money convertible bond is very close to its theoretical prices, bonds with shallow-in-the-money or shallow-out of-the money is underpriced significantly.