The objective of this study is to examine the impact of convertible bond arbitrage activity onshort-selling levels of the underlying equity. We exploit changes in Reg SHO reported shortsale data to identify convertible bond arbitrage related short-selling activity. By furtherscrutinizing 335 convertible bonds around the issuance as well as for the period followingissuance. Results provide considerable evidence of arbitrage-induced short-selling for boththe period around the issuance and the post-issue period. Moreover, deal-specific charac-teristics capturing hedging demand and attractiveness of the arbitrage opportunity stronglyrelate to convertible arbitrage short-selling. Given our identification of short-selling withdaily accuracy near the issuance, our paper highlights the benefits of applying empiricalprecision to the study of convertible bond arbitrage activity.

Yang, A.
Economics of Management and Organisation
Erasmus School of Economics

Broek, L. van den. (2020, May). Convertible bond arbitrage and short-selling activity. Economics of Management and Organisation. Retrieved from