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The link between intraday signals and call warrant mispricing

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  • Yueh-Neng Lin
  • Shih-Kuo Yeh
  • Shih-Ching Chuan
  • Steven J. Jordan

Abstract

This study proposes a linkage between intraday variables (signal amounts and signal duration) and the mispricing of Taiwan call warrant prices, based on the lower boundary condition of Merton [1973. Theory of rational option pricing. Bell Journal of Economics and Management Science , 4 (1), 141--183] as modified by Galai [1978. Empirical tests of boundary conditions for CBOE options. Journal of Financial Economics , 9 (2), 321--346]. Trading mispriced call warrants associated with a riskless hedging strategy over the period January 2004--December 2005 on average produces abnormal profits after taking into account transaction costs, as indicative of an inefficient market.

Suggested Citation

  • Yueh-Neng Lin & Shih-Kuo Yeh & Shih-Ching Chuan & Steven J. Jordan, 2008. "The link between intraday signals and call warrant mispricing," The Service Industries Journal, Taylor & Francis Journals, vol. 30(13), pages 2273-2288, November.
    • Handle: RePEc:taf:servic:v:30:y:2008:i:13:p:2273-2288
    DOI: 10.1080/02642060802629885
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