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The Impact of Warrant Introduction: The Australian Experience

Author

Listed:
  • Michael Clarke

    (School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Victoria, 3125, Australia)

  • Gerard Gannon

    (School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Victoria, 3125, Australia)

  • Russell Vinning

    (School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Victoria, 3125, Australia)

Abstract

The main purpose of this paper is to examine the impact that the introduction of exchange traded derivative warrants has on the underlying securities' price, volume and volatility in the Australian market. The impact that derivative trading has on the underlying security is essential to our understanding of security market behaviour and important in the fields of market efficiency and pricing of derivatives. The major findings of significant negative abnormal returns, reduction in skewness, no change in beta and small changes in variance are consistent with recent research findings in the US, UK and Hong Kong. However, the findings of derivative warrant listing resulting in decreased trading volume is in contrast with most prior research in the field. The results of this research, showing a negative price impact, decreased volume and no change in risk, and other recent empirical findings such as Mayhew and Mihov (2000) or Faff and Hillier (2003), indicate a requirement for further development of the theoretical frameworks.

Suggested Citation

  • Michael Clarke & Gerard Gannon & Russell Vinning, 2011. "The Impact of Warrant Introduction: The Australian Experience," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 213-269.
    • Handle: RePEc:wsi:rpbfmp:v:14:y:2011:i:02:n:s021909151100224x
    DOI: 10.1142/S021909151100224X
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    References listed on IDEAS

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    1. Detemple, Jerome B & Selden, Larry, 1991. "A General Equilibrium Analysis of Option and Stock Market Interactions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 279-303, May.
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    Cited by:

    1. Leonard L. Lundstrum, 2016. "Option listing: market quality revisited," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 565-578, October.

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    More about this item

    Keywords

    Derivatives; warrants; market efficiency; event study;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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