The Impact Of Warrant Introductions On The Behavior Of Underlying Stocks Of Mainland Of China

The warrant market of mainland of China develops extremely swift, since the first warrant introduced in August 2005, the total volume of the warrant market of Shanghai and Shenzhen has placed the second in the whole world, warrant market of mainland of China becomes the global second warrant trading market. Besides rapid development, warrant market of mainland of China also exposes many questions. Warrant is the derivative of its underlying stock, and has interaction relation with it theoretically, thus the introduction of warrant may influence the stock market. Researching the impact of warrant introductions on the behavior of underlying stocks and discovering rule and the question is not only good for the investor to understand warrant, but also good for the warrant market's healthy development.This article studies the impact of warrant introductions on the behavior of underlying stocks of mainland of China, takes 26 warrants as the sample which released in mainland of China from August 2005 to May 2006, and analyses the sample from the price, the liquidity and the volatility of the underlying stock. The empirical results prove that, the impact of warrant introductions on the behavior of underlying stocks of mainland of China is extremely significant in price and liquidity. There is a temporary positive introduction effect in price before the introduction of warrants, and then a remarkable drop around the announcement day, the short-term speculation extremely prevails; there may be manipulation on the underlying stock price of put warrants; the liquidity of underlying stock increases largely around the introduce day, and the reaction of stock liquidity of call warrants already finished in the event period, but the increase in the liquidity of put warrants in and after the event period are both remarkable. However, the introduction of warrants increases the volatility of underlying stock in the short-term, but the effect is not very remarkable. The empirical results have generally supported the theory hypothesis. Moreover, this article has analyzed the problem of the warrant market in the mainland of China, and puts forward the improvement proposal by unifying the reality and the empirical results.