A convertible bond is a type of security that can be converted into a predetermined number of shares of the issuer's common stock at certain times during its life. Convertible bonds typically offer lower interest rates compared to regular bonds because they come with the potential for higher returns if the company's stock price rises. They are often used by companies as a way to raise capital without immediately diluting existing shareholders or affecting their stock price too much. Reference [1] explores the lead-lag relationship between convertible bonds and the stock markets. The authors pointed out, Following the execution of the aforementioned operations, the primary findings of this paper are as follows:
In short, the paper suggests that convertible bonds tend to lead the stock market. This study stands out as one of the few that investigates the lead-lag relationship between convertible bonds and stock markets. However, it's worth noting that the authors focused on the Chinese markets. It would be interesting to examine this lead-lag relationship in the US and other developed markets. Let us know what you think in the comments below or in the discussion forum. References [1] Liwei Jin, Xianghui Yuana, Keji Lu, Shihao Wanga and Zhichao Li, The lead lag relationship between convertible bonds and stocks: a perspective based on trading mechanism, Applied Economics, 2024 Originally Published Here: Lead-Lag Relationship Between Convertible Bonds and The Stock Markets
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