The Relationship Of Price Behavior Between Warrants And Underlying Stocks In Chinese Market

In August of 2005,warrant had been traded again and brought great influence on the capital market. This paper studies the relationship between warrants market and underlying stocks.In chapter one and chapter two, the paper introduces the background, significance, actuality of the study and introduces the history and basic theory about warrant to the latter study.In chapter three, through the event study method, the paper examines the impacts of introduction and expiration of warrants on price behavior of the underlying stocks. It is shown that the introduction of warrants causes a positive and permanent price effect. The expiration of warrants causes a positive price effect for in-the-money effect warrants , and no significant effect for out-the-money warrants except a negative effect on volume.In chapter four, the relationship between warrants and their underlying stocks in traded period is researched. The paper makes use of Granger causality test and GARCH model to tests the return spillover and volatility spillover effect. The empirical results show the bidirectional relationship exists between the rate of stock's and the rate of warrant's. The research indicate the bidirectional volatility spillover effect exists between the call warrants and stocks. But the put warrants don't have the volatility spillover effect on their underlying stocks. the warrants near the expiration has the more significant volatility spillover effect at the latter period.In chapter five, the paper studies the the price behavior of the warrants under the special trading mechanism. The special trading mechanism is the difference price limit between warrants market and stocks market. The conclusion is the special price limit influence the return,volume and volatility of warrants.In chapter six, the paper gets the quantitative relationship of price changes between warrants and underlying stocks through B-S pricing model and obtains the warrants price changes by using the stochastic process and Monte Carlo simulation to computes the VaR of the warrants. It is shown that adjusted VaR can predicts the risk about warrants better in 95% percent. But the VaR can't predict the risk of put warrants. So ,we need to strengthen the management of put warrants.In chapter seven, the paper concludes the all results and provides advices to the development of warrants.