Advanced

Global Evaluation of Contingent Convertibles: Testing for Evidence of Market Discipline in the CoCo Market

Iseklint, David LU and Bengtsson, David (2014) BUSN89 20141
Department of Business Administration
Abstract
In this paper, we investigate evidence of market discipline from contingent convertible (CoCo) issues. Previous research has focused on the monitoring aspect of market discipline, by testing risk sensitivity of market prices (subordinated notes and debentures (SND)) to accounting measures of bank risk. We take a similar approach using CoCo spreads and additionally use issue specific features. We analyze the CoCo market from the first issue in 2009 to Q1 2014, covering a sample of 118 contingent convertibles. Our findings provide evidence of market discipline, suggesting that investors are sensitive to the risk profile of the issuing bank. Moreover, several features incorporated in the contracts prove to have a significant relationship to... (More)
In this paper, we investigate evidence of market discipline from contingent convertible (CoCo) issues. Previous research has focused on the monitoring aspect of market discipline, by testing risk sensitivity of market prices (subordinated notes and debentures (SND)) to accounting measures of bank risk. We take a similar approach using CoCo spreads and additionally use issue specific features. We analyze the CoCo market from the first issue in 2009 to Q1 2014, covering a sample of 118 contingent convertibles. Our findings provide evidence of market discipline, suggesting that investors are sensitive to the risk profile of the issuing bank. Moreover, several features incorporated in the contracts prove to have a significant relationship to the spread of these instruments. (Less)
Please use this url to cite or link to this publication:
author
Iseklint, David LU and Bengtsson, David
supervisor
organization
course
BUSN89 20141
year
type
H1 - Master's Degree (One Year)
subject
keywords
Contingent convertibles, CoCo bonds, market discipline, monitoring, accounting risk indicators, bank risk, Basel III.
language
English
id
4530194
date added to LUP
2014-08-05 11:49:48
date last changed
2014-08-05 11:49:48
@misc{4530194,
  abstract     = {In this paper, we investigate evidence of market discipline from contingent convertible (CoCo) issues. Previous research has focused on the monitoring aspect of market discipline, by testing risk sensitivity of market prices (subordinated notes and debentures (SND)) to accounting measures of bank risk. We take a similar approach using CoCo spreads and additionally use issue specific features. We analyze the CoCo market from the first issue in 2009 to Q1 2014, covering a sample of 118 contingent convertibles. Our findings provide evidence of market discipline, suggesting that investors are sensitive to the risk profile of the issuing bank. Moreover, several features incorporated in the contracts prove to have a significant relationship to the spread of these instruments.},
  author       = {Iseklint, David and Bengtsson, David},
  keyword      = {Contingent convertibles,CoCo bonds,market discipline,monitoring,accounting risk indicators,bank risk,Basel III.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Global Evaluation of Contingent Convertibles: Testing for Evidence of Market Discipline in the CoCo Market},
  year         = {2014},
}