Empirical Analysis On The Impact Of Warrants Issue On The Underlying Stocks

Along with the process of equity division reform, the redivious stock warrants,which aroused broad attention and attracted plenty funds, became the focus ofdomestic capital market immediately. The introduction of warrants is not only a plan tocompensate investors for allowing the company's non-tradable shares to be listed onthe securities market, but also a start of financial innovation in our securities market,which will help open a new market for the derivative instruments. As a financederivative similar to option, the initiation and transaction of warrant would influencethe underlying assets. This research aims to discuss and prove the short-term andlong-term effects of warrants issue on underlying stocks through empirical analysis.After introducing the general situation of recent domestic warrants market, thisstudy selects five stocks with warrants listed on the SHSE and SZSE as sample,through event research method, compares the trading volume, price, return, volatilityand beta of the underlying stocks 10 days or 70 days before and after the warrantsissue, explains the market response to the event, and estimate the effect of the listingof warrants. We utilize the t-test of AR, the test for equality of means and variances oftrading volume and return, market model and GARCH model with dummy variable.The empirical results indicate that peak value of trading volume occurs near thewarrant listing, and then falls gradually to a level higher than it before the warrantlisting;the price gains a short-term supportive effect with a positive cumulativeabnormal return;but the impact on the volatility, beta and conditional variances isuncertain, that is to say, for the impact on the underlying stocks' risk, there is noconsistent conclusion statistically.