An Empirical Analysis of Call Warrant Listing on the Underlying Stock Returns: Some Chinese Evidence

Abstract

The deregulation on the constraints on the introductory of third-party call warrants in China offers an opportunity to realize whether or not the time-varying price dynamics are altered by the deregulation. By employing the event-study method this paper investigates the impacts of call warrant listing on the underlying stock returns on China's market based on Baosteel and Baosteel JTB listed before and after 10 days. Empirical results show that call warrant listing has a non-linear impact on average exceed rate and enlarge exceed income fluctuation which supports the theoretical expectation that the listing of call warrants can improve market efficiency. This study also finds that call warrant issuance has a short-term positive impact on the underlying stock returns by T-statistics, which implies short-term speculation is very popular in Chinese market. Further, this study finds that the average excess returns have wide gap in front and back warrant listing by F-statistics, it indicates that warrant listing increases positive price volatility, which deviates from the original intention of warrant issuance.