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Liquidity Frictions in Convertible Bond Arbitrage: Evidence from the US

Bartok, Mads Arnø; Haugen, Erik Tesli
Master thesis
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URI
https://hdl.handle.net/11250/2825619
Date
2021
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  • Master of Science [1530]
Abstract
We study Over-The-Counter (OTC) market frictions in the convertible bond arbitrage strategy.

using noise and intermediary risk factors, in the US. We analyze two hedge fund indices, the

convertible arbitrage indices of Credit Suisse (CSFB) and Hedge Fund Research (HFRI), alongside

a simulated convertible arbitrage portfolio based on historical data. Using multiple regression

models, we find that the strategy has negative exposure towards noise risk and positive exposure

towards intermediary risk. Our results are robust to including standard risk factors. We conclude

that noise and intermediary risk factors explain part of convertible arbitrage returns in the US.
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2021
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Handelshøyskolen BI

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