Call Warrants In China'S Securities Market: Pricing Biases And Investors' Confusion
AbstractThis paper examines the price performance of call warrants in China's securities market. A recent sample of daily call warrant prices observed during the period from August 2005 to March 2007 is used. To the best of our knowledge this is the only recent study to using data from China and as such it greatly enhances our understanding of this particular market. On average, we find that the observed market prices are irrationally higher than the Black-Scholes model prices by 80.38% (using 180-day historical volatility) and 140.50% (using EGARCH volatility). However, we find another anomalous phenomenon that some of the call warrants prices are not only lower than the model prices, but have also recently been anomalously under their lower bounds. This finding seems to violate the "no arbitrage" principle. Among the convincing reasons, our findings indicate that trading mechanism constraints in China's securities market prevent rational investors from driving the prices of these call warrants to a reasonable level. Arbitrage chances are found to exist in some specific cases when the call warrant prices are below their lower bounds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal New Mathematics and Natural Computation.
Volume (Year): 07 (2011)
Issue (Month): 02 ()
Contact details of provider:
Web page: http://www.worldscinet.com/nmnc/nmnc.shtml
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).
If references are entirely missing, you can add them using this form.