Are Derivative Warrants Overpriced?

2012 ◽  
Vol 32 (12) ◽  
pp. 1144-1170 ◽  
Author(s):  
Joseph K. W. Fung ◽  
Ted Z. X. Zeng
Keyword(s):  
Derivative Warrants

scholarly journals The Impact of Warrant Introduction: The Australian Experience

2011 ◽  
Vol 14 (02) ◽  
pp. 213-269 ◽  
Author(s):  
Michael Clarke ◽  
Gerard Gannon ◽  
Russell Vinning
Keyword(s):  
Trading Volume ◽  
Abnormal Returns ◽  
Price Impact ◽  
Security Market ◽  
Theoretical Frameworks ◽  
The Us ◽  
Research Findings ◽  
Australian Experience ◽  
Derivative Warrants ◽  
The Impact

The main purpose of this paper is to examine the impact that the introduction of exchange traded derivative warrants has on the underlying securities' price, volume and volatility in the Australian market. 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 derivatives. 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, the findings of derivative warrant listing resulting in decreased trading volume is in contrast with most prior research in the field. The results of this research, showing a negative price impact, decreased volume and no change in risk, and other recent empirical findings such as Mayhew and Mihov (2000) or Faff and Hillier (2003), indicate a requirement for further development of the theoretical frameworks.

Why Are Derivative Warrants More Expensive Than Options? An Empirical Study

2010 ◽  
Vol 46 (1) ◽  
pp. 275-297 ◽  
Author(s):  
Gang Li ◽  
Chu Zhang
Keyword(s):  
Hong Kong ◽  
Empirical Study ◽  
Price Difference ◽  
Liquidity Premium ◽  
Short Term ◽  
Liquidity Measures ◽  
Derivative Warrants ◽  
Using Data

AbstractDerivative warrants typically have higher prices than do otherwise identical options. Using data from the Hong Kong market during 2002–2007, we show that the price difference reflects the liquidity premium of derivative warrants over options. Newly issued derivative warrants are much more liquid than options with similar terms. As a result, long-term derivative warrants are preferred by traders who trade frequently. In spite of their higher prices, short-term returns on long-term derivative warrants are, in fact, higher than the hypothetical short-term returns on options. The differences in price and liquidity measures decline as the contracts get closer to maturity.

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