Most of Returns of Convertible Funds in China Come from a Simple Buy-and-Hold Strategy

The global convertible bonds (CBs) market is constantly expanding nowadays. There are altogether 76 convertible bonds in China with total issue size 175 billion. Convertible funds (CFs) which are mainly invested in convertible bonds play an important role in the convertible bonds market. Few papers cover the convertible funds in China. We have conducted some analysis on this topic. We find the return of most of convertible funds heavily depends on the return of the portfolio we constructed using a simple "buy-and-hold" strategy. However, we still adopt a two-factor regression model which using the daily return of a stock portfolio as a second factor to compare with This model improves the explanation power but the improvement is not significant. Our main contributions are the construction of an original self-financing portfolio with a variable weight and the conclusion that the returns of most convertible funds depend on a simple strategy.