Study On The Market Premium Of Convertible Bonds In China Based On Extended Fama-French Three Factor Model

Under the feeble environment of China's economic development,convertible bonds,as a combination of financing tools,have both equity and bond's characteristics.While broadening the financing methods for enterprises,it also provides investment channels for domestic investors.Therefore,the research and improvement of it is particularly important.This paper tries to compare and analyze the Fama-French three factor model and its five factor expansion model which include conversion premium factor and liquidity factor.We collect the long-term data of convertible bonds market in China,analyze the convertible bond market from the perspective of portfolio,and study the premium characteristics and development trend of convertible bond market in China.At the same time,we select the typical convertible bond issuing industry,and explore the characteristics of the development of convertible bond market.This paper selects China's convertible bond market as the research object,research on the selection of time window is from 2004 to late June 30,2017,the Fama-French factor model of the application in the stock market is widely applicable to the inquiry of the convertible bond market.This paper innovatively join conversion premium factor and the liquidity factor extended form five factor model,compared with the traditional three factor model,trying to explore China's premium features of convertible bond market and the application of the factor model.This paper makes an empirical analysis of the sample data,through four groups of convertible bonds according to the sample size and book to market ratio group formed convertible bonds on characteristics were analyzed,using the two models,and selected three major industries of convertible bonds to study which model is more suitable.The main conclusions are:(1)The empirical results show that the new liquidity factor and the convertible premium factor regression are significant,indicating that there is an obvious liquidity premium and premium premium rate in convertible bond market in china.Fama-French five factor model modified break through the limitations of traditional Fama-French model,modified to take account of the liquidity factor and can express characteristics of convertible bond derivative conversion premium factor effect on convertible bond premium,perfect the marketpremium features of convertible bonds.(2)In the four groups of convertible bonds,there are obvious market premium,equity premium and liquidity premium.Compared with the three factor model,the market premium coefficient in the five factor model is significantly reduced,but the market factor is still the most important factor causing the excess return of convertible bonds.The new stock factor and liquidity factor explain the excess return of some convertible bonds,and the stock premium is more prominent in small companies.(3)In addition to the small scale,high market value ratio group,the scale premium is not significant,the rest of the group has obvious scale premium and book market value premium.(4)There is difference in convertible bond premium in diffirent industry.The manufacturing and electricity,gas and water production and supply sectors show an obvious market premium and liquidity premium,and the liquidity premium in the power industry is significantly higher than that in the manufacturing sector.In the transportation,storage and postal industry,the book value ratio,the market premium and the liquidity premium are shown,and the book value ratio is more obvious than the premium.