The effectiveness of any sanction depends on the costs of avoiding its restrictions. We examine whether bearish option strategies were substitutes for short sales during the September 2008 short-sale ban. We find a significant diminution in option volumes and a significant increase in option...

By buying convertibles and shorting the underlying stock, hedge funds distribute equity exposure to well-diversified shareholders. We find that a higher fraction of a convertible is privately-placed with hedge funds when institutional ownership, stock liquidity, issue size, concurrent stock...

Investment characteristics and the form of external financing are linked. Factor analysis indicates that the principal determinant of the financing choice is whether an investment's payoffs can be described as a hit or miss. Hit-or-miss investments are more likely to be equity financed. Equity...

We provide evidence that security design reflects the interplay of capital supplier and security issuer preferences. While call provisions have historically been the default option in convertible security design, only a minority of post-2005 issues are callable. Because hedge funds dominate the...