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Do put warrants unwind short‐sale restrictions? Further evidence from the Taiwan Stock Exchange

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  • Yi‐Wei Chuang
  • Wei‐Che Tsai
  • Pei‐Shih Weng
  • Chi Yin

Abstract

This study investigates the relationship between stock short‐selling restrictions and bearish equity warrants on the Taiwan Stock Exchange to clarify the substitutive role of put warrants for underlying stocks subject to short‐sale constraints. We show that put warrant transactions increase when short selling is prohibited in the spot market and the substitutive increase in trading also leads to wider bid–ask spreads and higher implied volatility for put warrants. Moreover, we find that the increased trading activities in put warrants could subsequently affect spot market trading through warrant issuers' required dynamic hedging behaviors.

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  • Yi‐Wei Chuang & Wei‐Che Tsai & Pei‐Shih Weng & Chi Yin, 2021. "Do put warrants unwind short‐sale restrictions? Further evidence from the Taiwan Stock Exchange," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(3), pages 325-348, March.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:3:p:325-348
    DOI: 10.1002/fut.22169
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    Cited by:

    1. Bae, Kwangil & Lee, Soonhee, 2022. "Prices of derivative warrants considering their market characteristics and short-selling costs of underlying assets," Finance Research Letters, Elsevier, vol. 45(C).

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