Project Management

Convertible Bond Arbitrageurs As Suppliers Of Capital

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Executive Summary

This paper examines the potential impact of capital supply on security issuance. The authors focus on the role of convertible bond arbitrageurs as suppliers of capital to issuers of convertible bonds. They estimate a simultaneous equations model of demand and supply of convertible bond capital, linking the time series of aggregate convertible bond issuance to measures of capital supply: convertible bond arbitrage hedge fund flows, returns, and a proxy for arbitrageurs' use of leverage. They find that issuance is positively and significantly related to increases in all three supply measures.

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