Clientele effects and cross-security market making: Evidence from calls of convertible preferred securities

John S. Howe, Ji-chai Lin, Ajai K. Singh

Research output: Journal article publicationJournal articleAcademic researchpeer-review

8 Citations (Scopus)

Abstract

We examine trading activity, bid-ask spreads, and potential arbitrage opportunities for market makers in the period around conversion-forcing calls of convertible preferred securities. We find an increased turnover in the called convertible preferred stock, which is consistent with a clientele effect. We also find a decrease in the average bid-ask spread of the called convertible preferred and the underlying common stock. This suggests increased liquidity in the post-announcement period. We argue that the liquidity improvement is a consequence of profitable cross-security trading opportunities.
Original languageEnglish
Pages (from-to)41-52
Number of pages12
JournalFinancial Management
Volume27
Issue number4
DOIs
Publication statusPublished - 1 Jan 1998

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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