Research On The Early Redemption Announcement Effect Of Convertible Bonds

With the rapid development of China's convertible bond market,the role of convertible bond in the financing activities of the listed companies is becoming more and more important.Convertible bond is a kind of bond which combines many options.And the redemption right is one of the important options of convertible bonds.Studying the effect of early redemption announcement on stock return and convertible premium can deepen the market's understanding of convertible bonds.And it can provide reference for the listed companies to make use of redemption right and investors to formulate investment strategies.Firstly,this paper introduces the research background and significance of the early redemption announcement effect of convertible bonds,summarizes the related theories of redemption announcement effect by combing the pertinent literature of convertible bonds at home and abroad,introduces the development process of convertible bonds and the current situation of redemption of convertible bonds in China.Then the event study method is used to study the early redemption of convertible bonds from 2004 to 2018,and the announcement effect of early redemption is studied in segments according to the development process of convertible bond market in China.Subsequently,we use multiple regression analysis to analyze the influencing factors of the early redemption announcement effect.Finally,the paper introduces the strategy of convertible bond arbitrage and makes an empirical analysis of one-way arbitrage.By studying the effect of early redemption announcement on the convertible bond conversion premium rate,the paper analysis the relationship between convertible bond arbitrage opportunity and redemption announcement.The empirical results show that the announcement effect of early redemption of convertible bonds in China is significantly negative,and it is significant in one trading day before the announcements and the 20 trading days after the announcements.And the announcement effect of early redemption between 2010 and 2018 is more significant than that between 2004 and 2009.The mainly influencing factors of redemption announcement effect are company size,company growth,financial leverage and redemption prompt period.The results show that there are arbitrage opportunities in China's convertible bond market.Conversion premium rate is significantly positive in five trading days before the redemption announcement.Conversion premium rate is significantly negative in announcement date and five trading days after the redemption announcement.Most convertible bonds have arbitrage space in announcement date and five trading days after the redemption announcement.