Dissertation > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market

Empirical Rresearch on Price Fluctuations of Warrants in Current Market of China

Author ZhengGuoYan
Tutor YangXiaoMing
School Nanjing University of Aeronautics and Astronautics
Course Finance
Keywords Warrants Warrants prices GARCH model The underlying stock Granger causality test
CLC F832.5
Type Master's thesis
Year 2009
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Warrants have become the focus in China’s capital market after it was launched and have drawn so much attention with a large influx of money. As a financial derivative product like futures, its introduction can be considered to be a breakthrough in the development of derivatives markets. Managers and investors pay far more attention to the investigation about price fluctuations and the theories behind them in the warrants market.This article will study the principles of price fluctuations by analysing some practices. Furthermore, the relationships among price volatility and its underlying stock price changes, effectiveness of investors’ sentiment, turnover as well as the composite index of price volatilities are also discussed. After telling the developments of China’s warrants market, conceptions of warrants and its relevant theories are introduced. In chapter 3, this paper investigates the rates of price changes about 10 warrants during different intervals of 5 minutes, 30 minutes and 60 minutes, revealing that the overall volatility of price level (standard deviation) increases as the frequency by which data are chosen decreases and that consistency in fluctuations of high-frequency data is far poorer than the low frequency data. In addition, China’s warrant price volatility sequences have a strong clustering feature. The study also indicates that high-yield market comes to us with high risks. High risk premiums, which make people dislike risks to such an extent, give rise to a number of irrational investments and transactions. Meanwhile, leverage and feedback effects in China’s warrants market are very apparent. Here, certain periods of several warrants (from their Issue Dates to September 30th,2009) are selected to be studied with the method of Granger. This paper analyses the influences each factor (the underlying stock price volatility rate of return, turnover, premium rates, the mental effects of investors’ behavior, yield of the Composite Index price fluctuations ) exerts on the rate of return, and the following conclusions are obtained: warrants market has a close connection with the underlying stock price fluctuations yield; its price fluctuations are obviously affected by turnover, premium rates, and the mental effects of investors’ behaviours while it has a weak connection with the price fluctuations and the composite index returns; in addition warrants act earlier than the broad market’s performance. Finally, the paper Summed up the conclusions of this research and puts forward relevant countermeasures.

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