Convertible Bond Investment Strategy Based On Conversion Motivation

The ultimate purpose of listed companies issued convertible bond is to make the holders convert the bonds into stocks of issuers instead of repaying the capital with interests. Most convertible bonds are issued with stockprice-adjusted provision, callability provision and resale provision. These provisions offers the issuers rights that can adjust the conversion price, redeem in advance, and allow the holders to sell the bonds back to issuers.Based on the basic provisions, the author researched the strong motivation behind the issuers of convertible bonds-listed companies. Listed companies have powerful incentives to lure the holder to convert the bonds into stocks. Meanwhile, the author built an investment strategy on the basis of motivation behind the basic provisions. The author used case analysis and empirical analysis as research methods. The author studied the stock-priceadjusted provision by taking examples of 100567.SH and 125572.SZ and the callability provision by example of 110020.SH and observed the returns of investments. In the part of stock-price-adjusted provision, the author used empirical analysis method and applied the Logit model to forecast the occurrence probability of this term. The significance of calculating the probability is that it might make good profits for investors. Because investors can buy the bonds in advance when the price is at a low level, then sell them at a higher level after the issuer announced to adjust the conversion price. The research results show that the investment portfolio has good returns on investments. Therefore, the investment is feasible.