Proceedings of Annual Paris Business and Social Science Research Conference pages pages:1-28
Proceedings of Annual Paris Business and Social Science Research Conference pages:1-28
Annual Paris Business and Social Science Research Conference location:Paris date:4-5 July 2013
This paper shows that the characteristics of convertible bond funds (CBFs) differ considerably based on the regional asset allocation of the fund. More specifically, U.S. CBF returns correlate more strongly with equity returns,
while European and Asian CBFs returns show a higher correlation with bond returns. This is because U.S. convertibles are more equity-like in nature than European and Asian convertibles, which are constructed more like bonds. Moreover, we show that global CBFs have different characteristics depending on the nationality of the asset management company. A global CBF managed by a European (U.S.) asset management firm exhibits more bond (equity) like features because portfolio managers tend to compose
home biased portfolios. Our results have important repercussions for both investors and researchers, as the characteristics of a convertible bond fund will differ based on the regional asset allocation of the fund or based on the
domicile of the asset management firm.