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Empirical Study Of Chinese Warrant Market Microstructure

Posted on:2011-09-27Degree:DoctorType:Dissertation
Country:ChinaCandidate:H LuFull Text:PDF
GTID:1119360305966728Subject:Financial engineering
Abstract/Summary:PDF Full Text Request
A warrant is a security that entitles the holder to buy stock of a company that issued at a specified price within the certain time, it's one of the most popular financial instruments in developed security market. As the market developing, the research on the pricing, risk management and microstructure of warrant has become the focus of researchers.Market microstructure is about research on the features and patterns of financial market, which is becoming the hotspot of finacial fields. Volatility and liquidity have been the most important indicators of market quality and efficiency as they are the most important features of financial market.Researches in the market microstructure focus on the processes of discovering the trading prices and the operating mechanisms of the trading prices. Low frequency trading data is far from enough for this kind of researches. With the rapid development of computer science, it makes possible for people to explore the market microstructure with high frequency data. The empirical researches indicate that the model constructed for volatility and liquidity exhibits superior features in dealing with the high frequency financial data.In this paper, we first introduce the development of the warrant market of Chinese mainland and the application of high frequency financial data, then give a review of the research on the market microstructure, after that, we conduct empirical researches for volatility and liquidity.For volatility research, we first introduce the definiton and features of volatility, then with the time sharing high frequency data of 13 warrants of mainland market, we build the GARCH model by price return series. Besides, we analyze the asymmetric effect with the combination of IGARCH and TGARCH model.For liquidity research, we first take a brief review of the related literature about liquidity. Then we introduce econometric models used in the research including the linear and nonlinear model with different distributions. As a consequence, the paper constructs and analyzes the duration of 13 selected warrants from Chinese mainland warrant market with the ACD model introduced. Then, the empirical research is conducted to identify the reasonable distribution of the model. The empirical result indicates that the ACD model does a good job in analyzing the high frequency data of warrants. With external variables of market microstructure and an extended ACD model, the empirical research confirms some important hypothesis of the microstructure of Chinese financial market.We have found from the results that the GARCH model and the extended IGARCH fit the volatility of warrant well, which prove the existence of volatility clustering with asymmetric effect. Besides, the ACD model and SCD model have a good fitting for the liquidity of Chinese mainland warrant market. The model can also explain the volatility clustering of trading volume duration exactly. Among all the models, Log-GACD model and SCD model are the most fitted if we consider the results of model estimation and residual test. We give some advice for warrant market supervisor based on the research result. By trade mechanism reform, restriction on the asset size, development of new class warrant, we can reduce the volatility clustering and improve the market liquidity, then achieve the stable development of warrant market.
Keywords/Search Tags:warrant, high frequency data, microstructure, volatility, liquidity ACD model, GARCH model
PDF Full Text Request
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