Convertible arbitrage falls out of favour as market confidence falters

Convertible arbitrage

A lack of confidence in the market has led to a significant change in the environment for convertible arbitrage. This has led to its underperformance in recent months.

Convertible arbitrage involves buying convertible securities and shorting the equivalent stock. Conversion will offset the short position and the transaction will be profitable if the convertible is priced incorrectly to the stock.

Mike Bailey, global convertible bond investment officer at Lionhart Investments, believes convertible