China Convertible Bond Value Impact Factor Analysis

Convertible bonds are complex financial instruments and investment vehicles combining the characteristics of stocks and bonds, widely used in finance market. In China, convertible bonds come into public's eyesight gradually with developing diversified capital market.Since Fisher (1972) first reported a signigicant underpricing for initial public offering of common stock, there are abundant researches about market behavior of securities in finance. Even though it is of consideration to investors fund-acquirers security regulators and so on, there is no profound study about convertible bond's performance and effect factors. On the base of previous studies , this paper makes some researches in these aspects considering China's actual status.We collect a great deal datum and investigate the pricing of convertible bonds listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange, and observe the difference between market price and model value. According to it's characteristics,we divide effect factors into external risk straight-debt-component risk and equity-component risk. We also select representative indexes to measure each part risk, In addition, we add other indexes, such as moneyness and maturity. The result indicates that the theoretical values for the analyzed convertible bonds are on average 16.32%(significant at the 0.01 level) higher than the observed market prices. The empirical regression analysis shows that convertible bond's underestimate is significant negatively related to β. moneyness and duration. The explanation power of regression model is 66.8%. We also document similar analysis at issue date and find that β has a significant influnce on the dependent variable. At last we present the explore analysis and the result indicates that convertible bond's underestimate has positive relation with conversion premium instead of corporation's financial condition growth opportunity and so on.