THE INFORMATION-CONTENT OF VALUE LINE CONVERTIBLE BOND RANKINGS - A GOOD JOB ONLY IN IDENTIFYING POOR CONVERTIBLE DEBT PERFORMANCE

In this article, the authors extend the ''Value Line enigma'' literatu re by examining the information content of Value Line's convertible bo nd recommendations. They demonstrate that Value Line's convertible bon d recommendations earn significant returns over time, a finding that i s consistent with other studies that document the investment performan ce of Value Line recommendations for common stock and call options. Th e authors reach the opposite conclusion, however, when they use risk-a djusted returns. In fact, investors can earn significantly higher retu rns using common stock rankings to invest in convertible bonds than th ey can using the convertible bond ranking. Further analysis demonstrat es that Value Line does a good job of identifying only poor convertibl e debt performance and that convertible bond performance depends more on the revised bond ranking than the number of levels the ranking is c hanged.