Research And Analysis On The Impact Of The Security Markets By Warrant Creation System

Warrant comes out in a form as the solution programme of the domestic share reform. After that, the China warrant market began. As an emerging market, our warrant market is developing rapidly in recent years. It becomes the hot issue but also has emerged a lot of problems and anomalies. Since the first warrant Baosteel warrant listed in 2005, the market has been a serious imbalance in the supply and demand situation. Excessive speculation has led warrants prices deviated from its theoretical value. Exchange launched creation mechanisms at this time, the main purpose is to increase the supply of warrants and depress the excessive demand which led the prices to be irrational.However,creation system has been a controversial mechanism since it was introduced by the governor, and the debate still doesn't stop now. Whether the creation system really depressed the speculation and premote the pricing tend to be rational? How and how much did the mechanism impact the security markets? And what are the reference and guidance for the upcoming covered warrants from the creation system study? The findings can be high valued and meaningful, and could provide reference and basis for the regulator's decision-making. Further, they could improve the creation mechanism to enhance the flexibility and convenience of the transactions, increasing the investing value of warrants market, and give the market a better play to the role of price discovery.Therefore, within the framework of a broader and more in-depth perspective research on the impact of the security markets by the creation system, this paper is of great significance.Our research is based on the conclusion and analysis of the current market situation and viewpoints. This paper selects samples including domestic warrant creation events and trading data of the warrants and their underlying stocks from Nov. 2005 to Sept. 2007. We researched the impact on the market return, market volatility, market liquidity, mutual relations and causality by the creation system. We have done the empirical tests and statistics on the market behaviors of the transactions and operations, characterizing and analyzing the brokers'operating strategy. Also, we have researched on the impact on the pricing efficiency of the warrant market by the creation system and done analysis and interpretation from the empirical testing results.The main conclusions of the study are listed below:(1) The creation and write off events had a significant impact on the profitability and liquidity level of the warrant and underlying stock markets, the market react to the creation and write off intensively. The volatility of underlying stock market had decreased significantly after creation and increased significantly after the write-off. The volatility of warrant market had increased significantly after creation and increased insignificantly after the write-off.(2) The impact on the mutual relations and causality of the warrants and stocks markets by the creation system is small, mainly because there is a interrelated relation and dynamic system between the two markets, the creation system can not change this intrinsic association.(3) High premium is the basic premise for the brokers to create the warrants largely, and the creating degree depends on the level of warrant premium.(4) The creation mechanism had played a certain role and increased the warrants pricing efficiency relatively. But, it did not reach the expected effect that the warrant prices return to be rational fundamentally. Net capital constraint and brokers'own interests'maximization are the main reasons for the situation.