The Analysis Of The Chinese Warrant Price Based On The Noise Trade Model

Warrant is a kind of security-derivative which makes the trader can use a little money to earn much more because of its leverage. This character also makes warrant popular in many countries and regions. China open int warrant market again in2005 in order to smooth the revolution of the stock market. From then on, China has issued 55 warrants. Now, Chinese warrant market is an very important constitution of the Chinese capital market, so it is meaningful to have a research into the Chinese warrant market..First, we study the unusual phenomenon of the warrant market. We find two main financial anomalies. The first one is that although the warrant price has a strong correlation with its stock price but the premium rate of the warrant is unusual high. The second one is that some warrants have negative premium and the price of the warrant is lower than its internal value which is never occurred in efficient market.Then, we design a model based on DSSW model to explain these two anomalies. In the model, we assume that there ara two different trade, the arbitrager and the noise trade. We believe that it is the noise trade's momentum strategy cause the first anomaly. The explain of the second one is more complex. It has a relationship with the noise trader's strategy in different price trends.In the end, we use time series model to test the theoretical model. We find that the noise trade's behavior is stable in different warrant in different times while the arbitrager choose to invest. Though totally the noise trader has a stronger impact on the warrant price than the arbitrager, in the dead run,the arbitrager is stronger...