Short Selling Activities and Convertible Bond Arbitrage

1. Front Matter

   Pages I-XX

   PDF

2. Introduction

   • Sebastian P. Werner

   Pages 1-5

3. Background and Empirical Predictions

   • Sebastian P. Werner

   Pages 7-51

4. The Event Study Methodology

   • Sebastian P. Werner

   Pages 53-66

5. Data, Full Sample and Variable Construction

   • Sebastian P. Werner

   Pages 67-77

6. Difference in Abnormal Short Selling Activity Following Events of Large Positive Stock Price Changes

   • Sebastian P. Werner

   Pages 79-144

7. Difference in Information Content of Extreme Short Selling Activity Events and the Impact on Stock Returns

   • Sebastian P. Werner

   Pages 145-196

8. Overall Conclusion

   • Sebastian P. Werner

   Pages 197-199

9. Back Matter

   Pages 201-256

   PDF

The main cause of financial crisis may be found in the over-optimistic investing of b- ers that leads market prices away from fundamental values. However, in the aftermath of “excess” when stock markets tumble, it is usually the pessimists or short sellers who get publicly blamed. Despite the longstanding controversy on short selling activities, this market instrument remains a widely misunderstood concept by the public while it is an essential tool used by hedge funds for speculation and arbitrage. That is why it is important to investigate short selling for its different motivations and the resulting effect on stock returns, a subject whose empirical study is in its infancy. In his doctoral thesis, Sebastian examines convertible bond arbitrage, which is a typical hedge fund strategy that involves a long position in a convertible bond and a significant short position in the underlying stock. The short selling is employed as a hedge against movements in the stock price. With every change in the stock price, the hedge needs to be continuously readjusted, a practice which should lead companies with convertible bonds outstanding to have on average higher short selling activity than companies without convertible bonds. Furthermore, fundamental information should be processed differently in stocks with convertible bonds as stock price reactions based on the information are accompanied by the short selling of the convertible bond arbit- geurs.

• Convertible Bond Arbitrage
• Empirical Finance
• Event study
• Hedge Fund
• Hedging
• Trading
• selling
• stock returns

Sebastian P. Werner earned his doctoral degree from the European Business School under the supervision of Prof. Dr. Lutz Johanning and now works in equity portfolio management for a global bank based in Frankfurt.

Policies and ethics