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The purpose of this thesis was to define and analyze the convertible hedge. It was an attempt at gaining perspective from which to make investment decision. It was recognized that it is a problem to maintain purchasing power of savings on a long-term basis. Even though, there is no infallible formula for the preservation of capital, it was felt that the investor can develop a financial plan in a manner which will tend to minimize risk and at the same time, provide ample profit potential by using the convertible hedge.The broad range of trading possibilities offered to the hedge investor was demonstrated by describing hypothetical and actual hedging positions. Based on this analysis, it was concluded that the convertible hedge is a trading technique that permits the investor to minimize risks and, at the same time, allows profits from stock movements in either direction.

No description available.

This dissertation examines two different topics related to the issuance of a convertible debt security. The first essay addresses the question of how managers set the equity value in a convertible debt issue. A convertible debt security has value derived from an equity component and a debt component. As a result, managers must decide how much of the convertible debt's value will be derived from equity at issuance. I examine three hypotheses in addressing this question. Empirical evidence is provided supporting the assertion that managers issue more equity-like debt when the firm will have lower future operating performance and a greater potential for underinvestment. Empirical support is not found for managers take into consideration asset substitution concerns when setting the equity value in a convertible debt issue. The second essay examines why are abnormal returns negative for the equity during the convertible debt's issuance period. This has been documented by Dann and Mikkelson (1984), Mikkelson and Partch (1986, 1988), and also by this dissertation. I furnish evidence that is consistent with a bid-ask spread bias not causing the negative equity abnormal returns during the issuance period of a convertible debt security. Tests are also performed that provide results that are consistent with the issue period returns being partially due to a resolution of uncertainty. / Ph. D.

Thesis (M.B.A.)--University of North Carolina Wilmington, 2009. / Title from PDF title page (February 17, 2010) Includes bibliographical references (p. 21)

Studies on the use of hybrid securities by listed firms to raise capital in international markets have been limited. The existing evidence on the seasoned capital raising process has concentrated on straight equity and debt issues in the United States (US) market. The Australian market provides a unique comparative capital raising environment as it has a number of operating and structural features that are different to many other markets. These differences include the method of issuing securities (rights issues), underwriting contracts (standby contracts), the trading volume of securities (thin trading), the industry makeup of listed firms (a high number of resource firms) and characteristics of capital raising instruments (convertible debt is non callable and is the only type of listed debt instrument, options are used as stand alone instruments to raise capital). This research focuses on how these differences give rise to differences in the share price reaction to security issues, the relevant explanations of the share price reaction, the security choice decision and the demand for underwriter services in the Australian market, compared to other markets. The impact of the announcement of hybrid security issues is examined using event study methodology adjusted for thin trading (as per Maynes and Rumsey(1993). Australian markets have differing characteristics to international markets including differing issue and issuer characteristics of hybrid security issues. However, the announcement effect evidence for Australian hybrid issues is consistent with international evidence for convertible debt issues but is inconsistent for company issued options and preference shares. Announcements of convertible debt are met with a significant negative share market response, a positive pre announcement runup and negative post announcement dnft, similar to US and UK issues. Although the announcement of an option issue can be viewed as an issue of delayed equity, option issues are met with a significant positive share price response rather than the negative share price response found for international equity issues. Announcements of preference share issues are met with an insignificant positive share price response which is in contrast to US and UK results. The results of the analysis of the explanation of the announcement effect of issuing new hybrid securities in the Australian market, suggest that different variables are significant explanators for the Australian market compared to international markets. The results of the models developed for the explanations of the announcement effect of Australian hybrid issues differ across security type. In general, the results for Australian issues of hybrid securities provide the greatest support for variants of the information asymmetry hypothesis. Convertible debt issues are best explained by the general information asymmetry hypothesis and the information asymmetry : external monitoring hypothesis. Option issues are best explained by information asymmetry : rights issues information asymmetry : signalling and agency cost hypotheses. Preference share issues are best explained by information asymmetry : rights issues, information asymmetry : external monitoring and the information asymmetry : signalling hypothesis. The security choice decision between hybrid securities is examined using logit regression analysis. When the choice is restricted to options and convertible debt, firms with high financial risk (leverage) and firm nsk (share volatility) are more likely to issue equity or in this study, equity like securities (options) and firms with higher pre announcement returns and larger issue size are more likely to issue debt or debt like securities (convertible debt). When the choice is extended to include preference shares, firms with high firm risk are more likely to choose options and firms making a relatively large issue are less likely to choose options (when financial risk is measured as long term debt over total assets) or more likely to choose convertible debt (when financial risk is measured as long term debt over equity). The determinants of underwriter use are examined using logit regression analysis for option issues as they are the only type of hybrid instruments that are not mostly underwritten. The results for the demand for underwriter services show that issue size, trading frequency and market risk are the determinants of the use of underwriters for Australian option issuers. This implies that mangers are more likely to choose to use an underwriter, the higher the amount of capital to be raised, the higher the trading frequency of the shares and the lower the market risk. The results are similar to partial results found for New Zealand and Norwegian equity issues where subscription price discount, issue size, firm risk, trading frequency, shareholder concentration and shareholder precommitments are determinants of underwriter use.

Abstract As Convertible Bonds (CB) market increasingly prospers in recent years, not only has it become one of the most important financing tools for public firms, but also the popular investment target for investors. However, given the complexity of Convertible Bonds Issuance Terms, coexistence of new and old regulations, and difficulties in obtaining relevant information, investors know little about CB in terms of its investment restrictions as well as arbitrage opportunities and models. This study attempts to explore arbitrage strategies for CB¡¦s trading and investing, and to design a CB ¡§Information System¡¨ which severs as a CB database querying system, and helps enhance the efficiency of CB investment and arbitrage. In this study, three CB related information systems were developed after analyzing CB issuance information and market price: 1. ¡§Database Querying System,¡¨ which is used to search for arbitrage restrictions and related information before engaging in CB investment and arbitrage. 2. ¡§Put Provision Instant Quoting System,¡¨ which is able to receive market quotation before exchange deadline, and to instantly calculate the rate of return in put provision. 3. ¡§Arbitrage Instant Quoting System,¡¨ like ¡§Put Provision Instant Quoting System,¡¨ can promptly calculate the rate of return in CB and considerably increase operating efficiency and the rate of return in arbitrage. Based on the case study and empirical research, this study argues that these three information systems can practically help control the fluctuation of market price, enhance operating efficiency, and serve as an effective financial operating tool of CB arbitrage strategies. Accordingly, several conclusions of this study are presented as follows: 1. The current stock market is inefficient, so the arbitrage opportunities are still available. 2. When market is thriving and stock price exceeds CB price, there are more arbitrage opportunities for and higher rate of return in CB. 3. While investing put provision for CB often accompanies high return opportunities, investors are suggested to gingerly evaluate the finance risks of public firms beforehand, such as making use of ¡§Instant Quoting System¡¨ to operate, which is helpful to controlling market price effectively. 4. To avoid operating risks, Investors should recognize all kinds of issuance restrictions in advance. 5. Conducting ¡§Instant Quoting System¡¨ can obtain market information quickly and promote operation efficiency and the rate of return.

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No description available.

Thesis (M. Comm. (Hons.))--University of New South Wales, 2004. / Also available online.