The Empinical Study On The Effect Of Investor Sentiment On The Price Of Convertible Bonds

Convertible bonds a complexity finance derivatives.There are many factors have impact on pricing convertible bonds.Since Ingersoll(1977) and Brennan&Schwartz(1977)show an innovational approach to pricing convertible bonds, there are more and more papers about pricing convertible bonds.Longstaff&Schwartz(2001) presents a simple yet new approach for approximating the value of American option by using least squares,which opens the door to pricing a series finance derivatives,including convertible bonds.In our article,we get the idea from Longstaff&Schwartz(2001)to value convertible bonds. By Monte-Carlo simulation and least squares,we get the convertible bonds model value. Then we compare the model value with the market prices,.we get the difference between the market prices and what has been estimated and observe the difference.Choose closed-end funds’weighted discount rate and market turnover rate as the indirect index of investors’sentiment, use principal component anlysis to build a investors’sentiment index. At the last, using Cointegration test and Granger causility test,we get this result:the flunction of investors’sentiment index can cause the flunction of the difference between the market prices and model prices.Then,the result explains why the the flunction of the difference had tremendous changes in2007and2008.