An Empirical Analysis of the Spot Information and the Price Behavior of Warrants: The Case of Taiwan

• Main Authors: Mei-Yun Jian, 簡美雲
• Other Authors: Tsun-Siou Lee
• Format: Others
• Language: en_US
• Published: 2001
• Online Access: http://ndltd.ncl.edu.tw/handle/41474545199140445835

碩士 === 國立臺灣大學 === 財務金融學研究所 === 89 === Based on the significantly positive mispricing in the Taiwan warrant market, the influence upon price percentage deviation of the underlying securities’ return is investigated in this study. By utilizing AR model, we observed significantly negative relations between warrant mispricing and the spot returns. However, the impact coefficient becomes insignificant after the exclusion of the end-of-month effect and major influencing variables ( , , ). This result reveals that warrant issuers’ supporting strategy, if exists, helps to narrow mispricing in good market but solidify the price rigidity of warrants (prevent market price from further declines) and enlarge the deviation in bad market. Besides, warrant investors prefer to hold when the spot market gets unfavorable since considerable loss due to lack of liquidity is inevitable.When the unexpected shocks ( ) are fitted into the AR-GARCH model, the existence of first-order autocorrelation of daily mispricing is clearly verified. Moreover, both the GARCH and ARCH effect are detected in the variance equation in most cases. For asymmetry analysis, some evidences are found that the impact of bad news on future volatility is greater than that of good news of the same magnitude, consistent with the previous literature. The leverage and volatility feedback effects, however, fail to capture the essence of all the warrant market. Over-optimistic attitude toward new financial products, together with investors’ chasing good news may explain the uniquely asymmetric phenomenon.