| Since China Baoan Group issued the first convertible bond on November 19,1992,China’s convertible bond market has been developed for 30 years,and the overall scale of financing has exceeded 400 billion yuan.From the beginning of the difficult start,to now has the initial scale results,convertible bonds continuous to play an important role in China’s capital market,it provides investors with new investment tools and also become one of the most important refinancing tools to listed companies.In this context,studying the price linkage between convertible bonds and underlying stocks can provide decision-making support for investors on the basis of improving the correlation theory and expanding the scope of application,and also provides as important reference from the risk management’s perspective.This paper builds on the existing theoretical underpinnings of the convertible bond market and the linkage between financial markets,and illustrates the rationale for the linkage between the convertible bond market and the equity market in a theoretical presentation.This paper selects 37 pairs of convertible bonds and underlying stocks to study the linkage between the market returns of the two based on cointegration and Granger causality tests.Further,this paper empirically analyses the volatility spillover effects between the Chinese convertible bond market and the equity market from the perspective of price volatility using a BEKK-GARCH model and further investigates the dynamic correlation between the Chinese convertible bond market and the equity market by building a DCC-GARCH model.The empirical results show that there is no general short-term price linkage between the convertible bond market and the stock market in China,i.e.most changes in the price of convertible bonds in the short term cannot cause changes in the price of the underlying stock,and similarly,most changes in stock prices in the short term cannot have an impact on the price of convertible bonds;in the long term,there is also no cointegration relationship between the price of convertible bonds and stock prices,i.e.there is no long-term common trend between the price of convertible bonds and the In the long run,there is no co-integration between convertible bond prices and stock prices.From the perspective of volatility correlation,there is a more general volatility spillover between the convertible bond market and the equity market in China,i.e.volatility in the convertible bond market can significantly cause volatility in the equity market,while volatility in the equity market can also affect volatility in the convertible bond market;in addition,there is a strong positive correlation between the convertible bond market and the equity market in China,i.e.the returns of the two markets are generally moving in the same direction. |
