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Why Are Warrant Markets Sustained in Taiwan but Not in China?

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  • Wing-Keung Wong

    () (Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taichung City 41354, Taiwan
    Department of Medical Research, China Medical University Hospital, Taichung City 404, Taiwan
    Department of Economics and Finance, Hang Seng Management College, Hong Kong, China
    Department of Economics, Lingnan University, Hong Kong, China)

  • Hooi Hooi Lean

    () (Economics Program, School of Social Sciences, Universiti Sains Malaysia, 11800 Gelugor, Malaysia)

  • Michael McAleer

    () (Department of Finance, Asia University, Taichung City 41354, Taiwan
    Discipline of Business Analytics, University of Sydney Business School, Sydney, NSW 2006, Australia
    Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, 3062 PA Rotterdam, The Netherlands
    Department of Quantitative Economics, Complutense University of Madrid, 28040 Madrid, Spain)

  • Feng-Tse Tsai

    () (Department of Finance, Asia University, Taichung City 41354, Taiwan)

Abstract

This paper uses moment analysis, capital asset pricing model (CAPM) statistics, stochastic dominance (SD) test, and volume analysis to investigating why the market for Taiwan warrants can be sustained but not in China. Our moment analysis shows that buying in China warrants has a higher likelihood of losses. Our CAPM analysis shows that both the Sharpe ratio and Jensen index for warrants from the Chinese market are too negative. The Treynor index shows that Chinese warrants are highly volatile. Our SD analysis shows that risk averters prefer to invest in Chinese warrants compared to Taiwanese warrants, implying that the warrant issuers prefer to issue Taiwanese warrants than Chinese warrants. Using volume analysis, the Chinese warrant market is much more active, implying more speculative activities in China than in Taiwan. All the above could lead to China’s decision to close its warrant market. The findings in the paper are useful for academics, investors, and policy makers.

Suggested Citation

  • Wing-Keung Wong & Hooi Hooi Lean & Michael McAleer & Feng-Tse Tsai, 2018. "Why Are Warrant Markets Sustained in Taiwan but Not in China?," Sustainability, MDPI, Open Access Journal, vol. 10(10), pages 1-17, October.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:10:p:3748-:d:176380
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    References listed on IDEAS

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    Cited by:

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    2. Kim-Hung Pho & Tuan-Kiet Tran & Thi Diem-Chinh Ho & Wing-Keung Wong, 2019. "Optimal Solution Techniques in Decision Sciences A Review," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(1), pages 114-161, March.
    3. Andy Wui-Wing Cheng & Nikolai Sheung-Chi Chow & David Kam-Hung Chui & Wing-Keung Wong, 2019. "The Three Musketeers Relationships between Hong Kong, Shanghai and Shenzhen Before and After Shanghai–Hong Kong Stock Connect," Sustainability, MDPI, Open Access Journal, vol. 11(14), pages 1-20, July.
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    6. Zhiping Chen & Xinkai Zhuang & Jia Liu, 2019. "A Sustainability-Oriented Enhanced Indexation Model with Regime Switching and Cardinality Constraint," Sustainability, MDPI, Open Access Journal, vol. 11(15), pages 1-14, July.

    More about this item

    Keywords

    moment analysis; CAPM statistics; stochastic dominance; volume analysis; arbitrage opportunity; market efficiency; warrants; China market; Taiwan market;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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