| Budget Amount *help |
¥2,000,000 (Direct Cost: ¥2,000,000)
Fiscal Year 1997: ¥500,000 (Direct Cost: ¥500,000)
Fiscal Year 1996: ¥1,500,000 (Direct Cost: ¥1,500,000)
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| Research Abstract |
Our empirical studies on convertible bonds (CB) that the Japanese firms have issued inside and outside Japan from 1985 to 1995 have found the followings :
a) CB's looked as an American Option, have been voluntary exercised even when it didn't seem to be optimal for investors,
b) Identities (their reason) for exercises are (i) large institutional investors and/or securities houses (to avoid price changes that their large transactions would cause), and (ii) securities houses (to appropriately control CB inventories providing necessary liquidity to the market as market markters, and as current or future syndicate leaders in issuing markets). Their different motives for conversions than individual investors may explain the puzzle a).
c) The first conversion occurs while trading volume is large and prices of CB are mostly higher than its parity value. Subsequent conversions follow when trading volumes are low and CB prices are near its parity value. This suggests that identities and their reasons for conversion between these two cases are different.
d) In primary markets, the conditions of issues such as coupon rates and conversion prices have been rather inflexible, and quota occurred to equate supply with demand. Due to this inflexibility of a adjusting effective price of an issue, and to a rule requiring an issue must be distributed among large numbers of investors, we observe high trading volumes during one to two years after the issue, but quickly decreases thereafter.
e) Not only in the late 1980's but also in recent year, CB prices seem to be too low compared with its stock prices, as if there had been riskless arbitrage opportunities. However, it depends on costs for short selling of stocks, especially possible payments of maintenance margin, whether there were actually riskless arbitrage opportunities or not.
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