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Information asymmetry in warrants and their underlying stocks on the stock exchange of Thailand

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Author Info

  • Visaltanachoti, Nuttawat
  • Charoenwong, Charlie
  • Ding, David K.

Abstract

This paper examines the informational role of warrants based on the unique order data from the Stock Exchange of Thailand, where both warrants and stocks are traded under the same market structure and where warrants are as liquid as stocks. The estimated probability of informed trading (PIN) in warrants is found to be statistically higher than their underlying stocks regardless of order submission type and order size. The PIN explains a substantial portion of the cross-sectional variation in the opening spread beyond trading volume and minimum tick size. We find evidence that a signed warrant trade contains information about the future stock price and that warrants with a higher PIN have greater predictive powers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 18 (2011)
Issue (Month): 3 (June)
Pages: 474-487

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Handle: RePEc:eee:empfin:v:18:y:2011:i:3:p:474-487

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Web page: http://www.elsevier.com/locate/jempfin

Related research

Keywords: Probability of informed trading (PIN) Warrants Information asymmetry Price discovery Thailand;

References

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  1. Boehmer, Ekkehart & Grammig, Joachim & Theissen, Erik, 2007. "Estimating the probability of informed trading--does trade misclassification matter?," Journal of Financial Markets, Elsevier, vol. 10(1), pages 26-47, February.
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  15. Vega, Clara, 2006. "Stock price reaction to public and private information," Journal of Financial Economics, Elsevier, vol. 82(1), pages 103-133, October.
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