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Convertible bond is a kind of investment with both debt and stock characteristics, and its investment risk is between bond and stock. There are many ways to play convertible bonds. Beating new is a relatively safe and easy way to get started. Can beating new convertible bonds really make money? Is it risky? What factors affect the rate of return? The author took the data from 2018 to 2019 to take you to see whether convertible bonds can really make money.

Source: Tushare

Note: The yield is calculated as (the opening price of the first day of new bond listing – par value 100) /100

Yield analysis

First, take a look at the yield distribution of convertible bonds. The whole yield is slightly skewed to the right, and the peak value is about 1.5%, indicating that most of the yield of convertible bonds is concentrated around here. In the figure, 0 is the profit and loss dividing line, and the Shadowed area on the left of the dividing line represents the loss probability of 27.32% (considering the commission fee and other factors, both the loss and neither loss nor profit are set as losses), and the corresponding profit probability is 72.68%. In general, convertible bonds have a relatively good chance of winning (of course, people with different risk tolerance will have different opinions).

After roughly understanding the profit and loss distribution of the new convertible bonds and considering the risks in all aspects, if you want to further participate, you should study which convertible bonds can have a higher winning rate and yield. The following are some possible influencing factors for analysis.

Relationship between company market value and return rate

Does the yield have anything to do with the size of the issuer (measured here by market capitalisation)? Is it true that the higher the market value of the company, the higher the yield of convertible bonds? The data below tells you.

After drawing the scatter plot of the yield rate and the company’s market value, it is found that the market value of most bond issuers is small, located in the range of 0-25 billion yuan. When the market value is more than 50 billion yuan, only two convertible bonds have negative returns on new issuance, most of which are above 5%, and the largest loss is 5%. To get a clearer picture of the $0 billion to $50 billion earnings range, zoom in below.

When we zoom in on the range, we can still see obvious positive correlation, especially when the market value is greater than 200 (the red line in the figure is to the right), all convertible bonds have positive returns on new calls. Therefore, from the perspective of market value, although it cannot be concluded that the higher the market value is, the higher the yield will be, it is safer to choose companies with a market value of more than 20 billion yuan if you want to take smaller risks when participating in the convertible bond innovation, and the corresponding winning rate will be higher.

The relationship between plate and yield

At present, listed companies can be divided into main board, small and medium board and growth Enterprise Board. The main board market is mainly composed of some large blue chip enterprises, the small and medium board includes some medium-sized enterprises with stable development, and the growth enterprise board is mainly technology enterprises. The corresponding styles of companies in different sectors are different. Does this have an impact on the earnings of convertible bonds?

If the median to represent the overall rate of return, the overall rate of return of different plates gem > small board > main board. The quartile of the return rate of companies on the GEM and the main board are all located at 0, indicating that the win rate of these two sectors has reached 75%. In terms of the worst results, the largest loss range of gem companies is -10%, and its volatility is also larger than that of the other two sectors. To sum up, although companies located in gem have higher overall returns, they also need to bear greater risks.

The relationship between industry and yield

The next step is to study whether the rate of return has industry effect. Since some industries have small sample size, it is eliminated here. Industries with more than 5 samples are selected to see their rate of return (median) ranking.

From the perspective of industry, the earnings of convertible bonds in the software service and food industries are much higher than those of other industries. Although limited by a small number of samples, only 12 industries were selected, which is relatively poor in representativeness. However, the combination of industry effect here and plate effect above has certain reference significance in the selection of convertible bonds.

The time effect of returns

The above analysis is carried out from the perspective of market value, industry and plate. From the perspective of time, the following is to see whether the new return rate has time effect, such as whether the new return and win rate of different months are significantly different.

The heat map above shows the main statistics of the 12-month yield. From the perspective of overall returns, whether the average or median is used to represent the overall returns of the month, it is obvious that the returns of March, April and September are high, while the overall returns of May, June and August are low. In terms of principal security (minimum), the maximum losses for February, March, August, October and November were all less than 1%. In terms of comprehensive income and risks to be borne, if you want to renew convertible bonds, from the perspective of time, the most suitable time is February to April and October to December.

The above is the analysis of the factors affecting the return rate of convertible bonds. The relevant data sets are ready for you. You can obtain the relevant data sets and codes if you want to practice.

Want to get other financial data to research also can arrive Tushare website https://tushare.pro/register? Reg =134799 for simple registration, then the relevant interface can be called.

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