The Empirical Analysis On The Impact Of Warrants Which Are Around Maturity Date On Underlying Stocks In China

Warrants originated in the United States, American Electric Power Company issued the first warrant in 1911. Then every country’s warrant markets are developing rapidly. The United Kingdom issued the first European warrant in 1970, then Germany, Switzerland, the Netherlands and other countries have issued their own first warrant, and German warrants market, once has been the largest in the world. Hong Kong issued the first warrant in Asia. In recent years, the development of warrant is fast-growth in Asia and the Asian warrants market becomes the world’s largest market in trading volume and transaction value.With the process of shareholder structured reform, Chinese warrants market has developed fast and has become an important tool which enrich and improve the Chinese securities market from 2005 to now. As a financial investment tool, availability and maturity of the warrants will impact the underlying stock to some extent. According to scholars both at home and abroad, warrant conducted extensive market research. Domestic and foreign scholars had done the massive research, someone think the introduction of warrants has a significant impact to the underlying stock. According to Haddad and Voorhees, warrants can promote the validity of financial markets. The information of Market played more important role than option’s trading volume. Someone think the introduction of warrants has not a significant impact to the underlying stock. According to Per alkeback and Niclas, Warrants did not significantly affect on the underlying stock price, bid-ask spread, volatility and trading volume. Warrants can not increase profit opportunities for investors, because the special nature of warrants make the impact of the underlying stock becomes zero. Someone think the introduction of warrants has not a significant impact to the underlying stock under some conditions. Sorescu study options from the 1973 to 1995 at the CBOE. He found that the option has a positive return from 1973 to 1980, and the option has a negative return from 1981 to 1995. But few scholars research that whether warrants have impact on the underlying stock in a period of maturity of the warrants. This paper aims to analysis of the impact of the underlying stock through empirical research methods on five warrants in a period of maturity of the warrants.The first chapter describes the background and significance, because the relationship between the warrants and the underlying stock has important theoretical and practical significance. This second chapter introduces the basic theory of warrant, Including warrants’definition and classification etc. In the third and forth chapter, based on summary of the warrants study both at home and abroad, this paper takes five typical warrants which have expired, they are Nanhang, Zhaohang, Wugang, Yagerer and Maotai. This paper uses event study methodology and chooses a 30-day-period of before and after vesting date. the empirical research divided into three aspects:the first part is we calculate Abnormal return rate during the event window. At the same time, we use t test to estimate whether maturity of the warrants have a comparatively prominent impact on the price of the underlying stock The second part is we calculate liquidity ratio and we use t test to estimate whether maturity of the warrants have a comparatively prominent impact on the underlying stock’liquidity. In the forth chapter, we use Pareto theory to measure the risk of the underlying stock.By empirical study found that during the event window, abnormal return rate of the underlying stock isn’t significant; liquidity ratio of the underlying stock isn’t significant; Pareto theory indicate that the risk of the underlying stock is significant. So the conclusion of this paper is that the impact of the underlying stock is significant on the risk during the event window. In the final chapter of this paper, we analyze the reason why that the impact of the underlying stock isn’t significant on abnormal return rate and liquidity ratio during the event window, while is significant on the risk. The reasons consist of speculation markedly、trading system is imperfect and so on. At the same time, we propose the introduction of market makers, improve the trading system and increase the variety of Warrants.