Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5069220 | Finance Research Letters | 2017 | 8 Pages |
Major international financial institutions (FIs) are using contingent convertible (CoCo) bonds in the wake of the 2008 financial crisis to meet stricter national and international capital requirements. Beginning with UniCredit's â¬500 m 9.375% CoCo in July 2010, more than 40 publicly held financial institutions headquartered in 16 countries have issued 68 CoCos. According to S&P's 2010 report, by the year 2020, CoCo bond volumes are expected to reach to $1 trillion. This paper examines investors' reactions to the announcements of CoCo bonds issuances by FIs. Using event-study methodology and measuring cumulative abnormal returns (CARs) following the announcements, we find FIs generally experience negative abnormal returns during the post-announcement period; however, the investors' reactions vary in a country-by-country analysis. These different reactions create opportunity for investors and issuers to launch global diversification and trading strategies.