Liquidity Determinants of Covered Call Warrants: Empirical Evidence from Vietnam

Research purpose: This research is aimed at identifying the key determinants of covered warrant liquidity in the Vietnamese stock market by investigating warrant-specific, market-related, and macroeconomic factors. The study seeks to provide a better understanding of the drivers of liquidity and contribute to the sustainable development of this emerging financial instrument. Research motivation: Covered call warrants have recently emerged as a new investment instrument in Vietnam’s stock market, playing a crucial role in enhancing market liquidity, providing investors with hedging, diversifying and speculative opportunities. However, the liquidity of covered call warrants is unstable and varies in emerging markets, making it essential to examine its determinants and provide practical implications for issuers, investors, and regulators. Research design, approach, and method: This study employs an Ordinary Least Squares (OLS) regression model to analyze the determinants of covered warrant liquidity. The empirical specification is adapted from prior studies on option market liquidity and the dataset is constructed from the full universe of publicly listed and expired covered call warrants within the Vietnamese financial market during June 2019 to January 2025. Main findings: The empirical results reveal that underlying trading volume and trading period have positive effects on covered warrant liquidity, while market volatility, moneyness, and the risk-free rate exert significant negative impacts. In contrast, the volatility of the underlying asset is not statistically significant. Practical implication: Theoretical knowledge – The study contributes to the literature on derivative markets by clarifying how market volatility, moneyness, trading period, and the risk-free rate affect covered warrant liquidity in an emerging market context. Investment recommendation – The findings provide useful references for investors in managing liquidity risk, for issuers in improving product design, issuance strategies, and for regulators in refining the legal framework to enhance efficiency, support the sustainable development of Vietnam’s derivatives market.