The Empirical Analysis On The Impact Of Warrants Listing On Underlying Stocks In The Mainland Of China

A long with the process of shareholder structure reform, in the year 2005, the warrant has emerged in the securities market of mainland of China. The introduction of warrant is not only a plan to compensate investors for allowing the non-traded shares to be listed on the securities market, but also a start of financial innovation of the derivative instruments in our securities market. As a kind of financial derivatives, the introduction and transaction of warrant would influence the underlying stocks. Researching the impact of warrant listing on the underlying stock and discussing the rules and the problem of the impact are not only good for the investor to understand warrant much better, but also good for the healthy development of the warrant market. So, this paper aims to analyses the impact of warrants listing on the price and risk of the underlying stocks.Based on local and foreign scholar's studies on warrants and options, this paper takes 30 warrants and their underlying stocks as sample. These warrants were listing in mainland of China from August 2005 to December 2007. In the empirical study of whether warrants listing have impact on underlying stocks' price, we use event-study methodology. We defined the listing days of warrants as the event day and the term which is 15 days before and after the event day as the event window. We calculated the AAR and the CAAR of these underlying stocks everyday during the event window. At the same time, we use t-test to estimate whether the warrants listing have a comparatively prominent impact on underlying stocks' price. In the research of whether warrants listing have impact on the risk of underlying stocks, we extend the term of the research to 60 days before and after the warrants listing. We use the CAPM model and the GARCH model to estimate the system risk (β-value) and the whole risk (the volatility of stock:σ). In addition, these two models above are all contain the dummy variables in this paper.The results of the study indicate that: (1) the price of underlying stocks gain a positive effect, but the positive effect don't persist in a longer term after the warrants listing; (2) there is no consistent conclusion about the impact of system risk of the underlying stocks, and almost half of the sample stocks'β-value have increased significantly after the warrants listing; (3) the stabilization effect of warrants listing on the volatility of the underlying stocks is limited and inconspicuous. These results are different with most of the foreign scholar's, whose studies based on the mature markets abroad. In the end, based on the conclusion of empirical analysis, the paper provides some advices for the further development of the warrant market in the mainland of China.