Empirical Analysis On The Current Convertible Bond Prices Characteristics

The convertible bonds market is an important component of the security market in a country. Inspite of the lagged kick-off, the convertible bonds market in our country has been developed very quickly together with the rapid development of our security market and the various demands from capital market, still we can expect a big expansion space and a high growth speed.Convertible bonds is a mixed financial tool. It is a special company bonds mixed with many options. Besides the evident equity convertible option, it usually has call option, put option, conversion price downward revision clause. Because of the options mixed in the bonds, the market price of convertible bonds is correlated with its bond value, especially its equity price. While, because of the complicacy of the convertible bonds, such as the uncertainty of the conversion price downward revision clause, these correlations between convertible bonds and its bond value, equity price changes in different periods and different market envirenments.As a positive study, we gathered whole one year’s data till now and analyzed the correlations between convertible bonds market and bond market, equity market to find the current price characteristics of convertible bonds. We hope our empirical study could provide reference materials for relative theoretical studys, also we hope we could provide investors with reference materials of convertible bonds for decision-making.In our study, we verified that the price of convertible bonds was consistent with the theory property of "the convertible bond’s downside risk is limited by its underlying straight value" during the passed last year, that the price of convertible bonds generally had a relative high correlation with its common stock price during the passed last year, that the price premium of convertible bonds to its straight value and the correlation between convertible bonds price and its common stock price was affected by the changes of stock market and bond security market during the passed last year. The Sinopec convertible bonds2.0version in last September, as a special case, because of its impact on the basic investment concept on convertible bonds market, extremely affected the market price of convertible bonds. Also, it is tested by our study that the current required risk-free rate of return, as a reference data, was about5%.