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Abstract
This article examines the effect of default and conversion option on bond duration. Empirical evidence shows that default risk decreases bond duration, excluding the case of investment-grade bonds with a short-term maturity. Furthermore, controlling for default risk effect, the conversion option decreases bond duration for equity-like and mixed bonds. Finally, the joint effect of default and conversion risk decreases bond duration for all convertible bonds.
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US and Overseas: +1 646-931-9045
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