The information content in contingent convertible bond prices

Arbeitspapier

Credit institutions are to an increasing extent using Contingent Convertible Bonds (CoCos) to meet part of their capital requirements, which could suggest that the market for CoCos contains useful information on the robustness of the issuer. This paper gives a thorough introduction to CoCos - the product, its use in capital regulation, the market and the specific risks faced by investors. To illustrate which information potentially can be extracted from the price level and change in prices of CoCos, we introduce models which incorporate most of the characteristics and risks of CoCos. The models illustrate how the complexity of CoCos makes them difficult to use when assessing the soundness of the issuer; in addition to this the many CoCospecific risks make it questionable whether the cost of CoCos constitutes a lower bound for the cost of equity.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Danmarks Nationalbank Working Papers ; No. 122

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Asset Pricing; Trading Volume; Bond Interest Rates ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Financial Institutions and Services: Government Policy and Regulation ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Financial regulation ; Financial stability ; Financial sector ; Financial risks ; Models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Grinderslev, Oliver Juhler ; Kristiansen, Kristian Loft
• Event: Veröffentlichung
• (who): Danmarks Nationalbank
• (where): Copenhagen
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/202862
• Last update: 10.03.2025, 11:41 AM CET