The Impact of Market Heat on the Equity Intensity of Convertible Bonds (Frontiers in Economics and Management)

Summary

• China's convertible bond market expanded over two decades to become the second-largest in the world.p.1
• Baseline regressions show that higher market heat significantly lowers equity intensity with a coefficient of ̢ = -0.0521 (p = 0.002).p.5
• A one-standard-deviation rise in market heat (8.25 percentage points of CSI 300 cumulative return) lowers equity intensity by about 0.0043.p.5
• Conversion premium negatively impacts equity intensity (̢ = -0.0141, p < 0.001) whereas stock volatility positively impacts it (̢ = 5.9061, p < 0.001), yielding a within R" of 0.227.p.6
• Interaction models confirm mechanisms where market heat combined with conversion premium is negative (̢ = -0.008, p < 0.001) while interaction with volatility is positive (̢ = 5.735, p = 0.004).p.6
• Excluding the 2020–2022 pandemic period weakens the effect, making it statistically insignificant (̢ = -0.020, p = 0.469).p.7

Key insights

1. Higher market heat reduces the equity intensity of Chinese convertible bonds with a baseline coefficient of ̢ = -0.052 (p = 0.002).p.1
2. The regression sample comprises 740 convertible bonds and 341,219 bond-period observations after filtering and winsorizing continuous variables.p.3
3. A higher conversion premium significantly reduces equity intensity with a coefficient of ̢ = -0.0141 (p < 0.001).p.6
4. Underlying stock volatility increases equity intensity with a regression coefficient of 5.9061 (p < 0.001).p.6
5. Interaction terms show that market heat dampens equity intensity more heavily when a bond trades at a higher conversion premium (̢ = -0.008, p < 0.001).p.6
6. Shorter rolling correlation windows of 20 days maintain a negative market heat coefficient of ̢ = -0.085 (p < 0.001).p.7
7. The negative relation between market heat and equity intensity becomes statistically insignificant when excluding the 2020–2022 pandemic period (̢ = -0.020, p = 0.469).p.7