The Impact Of The Warrants Listing On The Underlying Stocks

Since August 22, 2005, the floatation of Baosteel' s warrant JTB1 in Shanghai Stock Exchange, marked the commencement of China' s warrant market. Although still at the early stage, the warrant market in mainland China enjoys fairly fast growth, which has become the new highlight of China' s security market. Share warrant is a kind of derivative basing on underlying stocks, that is to say, it derives from underlying stocks. So whether the listings of warrants would have effects on yield,volatility and turnover of underlying stocks, has become overseas,HK and Taiwan scholars' concern. However, most overseas relevant study placed greater emphasis on stock options, after all there are differences between options and warrants; due to the discrepancy of warrant markets' trading institutions,rules and regulations in HK,Taiwan and mainland, their results and conclusions may not apply to mainland market. Since it' s not long after share warrants ever appeared in China mainland, currently there are hardly any theories or empirical study on how the listings of warrants would influence underlying stocks. So I think studying on this issue would have profound significance for sound development of China mainland' s warrant market.At first, the paperwork introduces the developed warrant markets and the history,current situation of mainland' s warrant market, following which the greater importance of energetically developing warrant market to a sophisticated capital market. Secondly, with relevant references at home and abroad, the paperwork proposes three propositions: through what channels would the listings of warrants influence yield,volatility and turnover of underlying stocks, which stays to be tested. Using the statistics of warrants listed from 8. 22. 2005 to 12. 31. 2007, and the event study method, the third part is all about the empirical study on whether effects of warrants' listings on underlying stocks' yield,volatility and turnover ever exist in China' s security market. At last, on the basis of previous part, the paperwork draws some conclusions: the intrinsic functions of warrant—price discovery,stabilization of underlying stocks' prices, have not at all functioned; another function of boosting underlying stocks' liquidity has not been fully developed, either. So there is urgent need to develop warrant market, energetically.