Introduction and expiration effects of derivative equity warrants in Hong Kong

Chen, K.C.; Wu, Lifan

doi:10.1016/s1057-5219(00)00044-2

Cited by 21 publications

(13 citation statements)

References 16 publications

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“…For studies related to DWs, Chen and Wu (2001) and Draper, Mak, and Tang (2001) find that negative abnormal returns and large abnormal volumes are related to the expiration of derivative call warrants. Chow, Haynes, Yung, and Zhang (2003) find similar price effects and some return volatility but no evidence of price reversal or abnormal volume associated with expiration-day effects.…”

Section: Prior Research and Hypotheses Developmentmentioning

confidence: 99%

“…Issuers also gain from the settlement process, since the settlement price is determined by the most favorable price to the issuer in two trading sessions after the MCE. Besides, there are arguments that the underlying stocks are manipulated around the option/warrant expiration (Chen & Wu, 2001;Pope & Yadav, 1992), which in CBBCs' case is an early "expiration." Consistent with Ni et al (2005), regardless whether there is delta hedging for option writers, there are incentives for manipulation.…”

Section: Price Effects Of Cbbcs' Mces On Underlying Stocksmentioning

confidence: 99%

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Price and Volume Effects of Exchange‐Traded Barrier Options: Evidence from Callable Bull/Bear Contracts

Lei¹

2014

Journal of Futures Markets

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This study examines the effects of the Mandatory Call Events (MCEs) of Callable Bull/Bear Contracts (CBBCs) on the underlying stocks. The recent development of CBBCs in Hong Kong creates a unique opportunity to study this new derivative instrument. There are significant abnormal returns and volumes around MCEs. The substantial amount of price reversal after MCEs in both interday and intraday results supports the notion of stock price manipulation. Also, a greater outstanding number of issues in the market increases the chance of MCEs. We also show that the abnormal volume leads to the abnormal returns around MCEs, implying that abnormal trading activities can cause MCEs. This article shows that a market with a substantial amount of touch-and-out options trading may induce manipulation of the underlying stocks. Our study suggests that restricting issuers from unwinding hedged positions before the termination of exchange-traded barrier options could improve investors' protection.

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Section: Prior Research and Hypotheses Developmentmentioning

confidence: 99%

Section: Price Effects Of Cbbcs' Mces On Underlying Stocksmentioning

confidence: 99%

Price and Volume Effects of Exchange‐Traded Barrier Options: Evidence from Callable Bull/Bear Contracts

Lei¹

2014

Journal of Futures Markets

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“…For the Hong Kong market, Draper, Mak, and Tang (2001), Chan and Wei (2001), and Chen and Wu (2001) find that warrant introduction and expiration affect the price and volume but not the volatility of the underlying stock.…”

Section: Literature Reviewmentioning

confidence: 99%

Are Derivative Warrants Overpriced?

Fung

Zeng²

2012

Journal of Futures Markets

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This study investigates the pricing efficiency of Hang Seng Index (HSI) derivative warrants in Hong Kong. Different from similar research, the study examines the pricing efficiency of index warrants by comparing their implied volatilities (IV) with realized volatility (RV). Although prior studies find that warrants are more expensive than the corresponding options, they are not necessarily overpriced in the conventional sense—that is, relative to the RV. This approach allows the study to test the pricing efficiency of warrants via a test of their information content. Moreover, unlike studies that focus on data at market close, the study uses a large sample of highly synchronous intraday, firm, bid–ask quote data to avoid possible distortions arising from intraday variations in liquidity and pricing in the instruments. The data also helps eliminate the potential nonsynchronous price problem that may affect the test results. Consistent with the results from previous studies, we find that warrants are often more expensive than options. This result is attributed to the inability of non‐issuers to sell short, and the high participation rate of unsophisticated investors in the warrants market. However, regression analysis shows that IVs from ATM and OTM warrants provide unbiased volatility forecasts, and that IVs from ATM options do not subsume the information content of ATM warrants. ATM warrant prices are in line with the RV and are efficiently priced. Simulation results show that writing warrants is more profitable than writing options, and that the overpricing is directly related to the volatility premium.

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“…Many studies have been conducted using older pre-90's data (eg Conrad, 1989 Recent studies have branched away from US data, with research being published ON the UK (eg Watt, Yadav & Draper, 1993) and Hong Kong (eg Chen & Wu, 2000) markets. The literature review will first discuss the frameworks and theoretical explanations for changes in stocks following option introduction, followed by discussions of empirical findings regarding price, volume, risk and other factors, and will conclude with a summary of relevant findings and implications for the theoretical frameworks.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Warrant Introduction: The Australian Experience

Clarke

Gannon

Vinning

2011

Rev. Pac. Basin Finan. Mark. Pol.

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The impact that derivative trading has on the underlying security is essential to our understanding of security market behaviour, and important in the fields of market efficiency and pricing of such derivatives. This paper examines the impact that the introduction of exchange traded derivative warrants has on the underlying securities' price, volume and volatility in the AbstractThe impact that derivative trading has on the underlying security is essential to our understanding of security market behaviour, and important in the fields of market efficiency and pricing of such derivatives. This paper examines the impact that the introduction of exchange traded derivative warrants has on the underlying securities' price, volume and volatility in the Australian market. The major findings of significant negative abnormal returns, reduction in skewness, no change in beta and small changes in variance are consistent with recent research findings in the US, UK and Hong Kong. However findings of derivative warrant listing resulting in decreased trading volume in contrast with most prior research in the field.

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Introduction and expiration effects of derivative equity warrants in Hong Kong

Cited by 21 publications

References 16 publications

Price and Volume Effects of Exchange‐Traded Barrier Options: Evidence from Callable Bull/Bear Contracts

Price and Volume Effects of Exchange‐Traded Barrier Options: Evidence from Callable Bull/Bear Contracts

Are Derivative Warrants Overpriced?

The Impact of Warrant Introduction: The Australian Experience

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