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Speculation Spillovers

Author

Listed:
  • Yu-Jane Liu

    (Guanghua School of Management, Peking University, Beijing 100871, China)

  • Zheng Zhang

    (Guanghua School of Management, Peking University, Beijing 100871, China)

  • Longkai Zhao

    (Guanghua School of Management, Peking University, Beijing 100871, China)

Abstract

This paper demonstrates that speculative activities can be contagious and spill over across markets. Specifically, we test the hypothesis that during China's warrants bubble period, speculative activities in the warrants market grabbed investors' attention and caused them to trade more speculatively in the underlying stocks. Consistent with this hypothesis, we find that turnover and return volatility of the underlying stocks are positively associated with the warrants' unexpected turnover and price deviation from their fundamental values during the previous day, controlling for information-driven trading and hedging motives, and that such a spillover effect is more pronounced when warrants attract more investor attention.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1914 . This paper was accepted by Wei Xiong, finance .

Suggested Citation

  • Yu-Jane Liu & Zheng Zhang & Longkai Zhao, 2015. "Speculation Spillovers," Management Science, INFORMS, vol. 61(3), pages 649-664, March.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:3:p:649-664
    DOI: 10.1287/mnsc.2014.1914
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