Performance of Auto-Callable Reverse Convertibles, Information Disclosure Prescribed by Regulation S-K Change in 2013 Under U.S. Security Act: an Empirical Study

This thesis studies the effect of the estimated value disclosure imposed in 2013 on the realized return of the auto-callable reverse convertibles (ACRCs) in the U.S. retail market. The sample of this study consists of about 3,700 issues of ACRCs during the period from 2011 to 2015, which is collected from the Edgar database of the U.S. Security and Exchange Committee (www.sec.gov). The comparison between product realized return and the return of underlying assets reveals that the ACRCs are underperformed by 5% on average, while further analysis shows that the return difference was broadened after the disclosure regulation. It is found that the statistical attributes of the underlying assets are critical to the product performance while they are hidden by the issuer of ACRCs. The disclosure regulation is presumed to enhance information disclosure and to further protect the investors, but the deteriorated performance of ACRCs indicates a failure of the regulation. To protect the anonymity and confidentiality, the identity of the issuer of ACRCs in our sample is removed without compromising the validity of our research. The original data is available upon request.