Convertible Arbitrage Q

Why is it true that a convertible arbitrage strategy (long undervalued convertible bond, short overvalued stock) works best in MODERATE volatility. I want to understand why it wouldn’t work in high volatility??


High volatility=greater risk of mismatched value between the convertible bond and stock. You bought the convertible bond because you think it’s undervalued but if the stock is going haywire, how can you tell? There’s a better way to explain this that I saw in the qbank but don’t remember it.