On The Development Of China's Warrants Market

Since the introduction of the share reform in 2005, warrants market in China has attracted the attention of all parties, and became one of the main battlefields of all the investors. Therefore, the warrants market experienced a rapid development. While the warrants market was in the rapid development, a series of problems have emerged. We can see, either from the trading volume, turnover, or from the price fluctuations, our warrants market is full of speculation, which involved both institutional factors and the artificial factors. Anyway, excessive speculation has brought a huge obstacle to the health of our warrants market. With the stock warrants expire in the near future, the warrants market will subside. At present, there is only one warrant, Changhong CWB1, in China's warrants market, which will expire on August 18, 2011. With the maturity of Changhong CWB1 approaching, China's warrants market is likely to stagnate, so in order to promote further standardization in China's warrants market development, it is necessary to further the study of warrants market. ?This paper contains six chapters. In the first chapter, it introduces the background, significance and purposes, as well as the existing studies on warrants at home and abroad. In the second part, it introduces the warrants and the warrants market functions. In the third one, this paper conducts a brief summary about the development of China's warrants market in the past five years, and makes a simple comment on the warrants market development. Fourthly, by the empirical test on the delisted warrants, we obtained the fact that most warrants and their underlying shares maintain a long-term equilibrium relationship and that there is a short-term causal relationship between some warrants and the underlying shares, which confirmed that the warrants market in China and the stock market is still correlated, but correlation is not as strong as the theory indicates. In the fifth part, based on the results of empirical test on the correlation between warrants and stock markets, it analyzes the problems in the warrants market and tries to figure out the reasons. Finally, we propose new ideas for the development of the warrants market, that we should focus on the development and construction of covered warrants and good arbitrage mechanism and that while building warrants related system in detail, we should improve the stock market to support the system, and should strengthen the cross-market supervision.The fourth, fifth and sixth parts are the key ones. The fourth section conducts the empirical tests on the correlation between the delisted warrants'prices and the underlying stocks'prices. The samples in the empirical correlation test are all the daily closing price of warrants, with the exclusion of some unqualified warrants. The method used is the ADF unit root test, EG two-step cointegration analysis and Granger causality test. The empirical tests and analysis, come to different results of previous studies: 1.In all the traded warrants, most of the warrants'prices and their underlying stock prices exist a long-term equilibrium relationship. 2. On the sample Granger causality test, the result showed that about half of the sample's warrants price has a causal relationship with the underlying stock price, but most of them have one way affection from stocks to warrants. So we can conclude the warrants market and the stock market do not have a strong correlation. The fifth part analyzes the problems and causes in the warrants market, which concludes that the reason why the warrants market in China is not strongly correlated with the stock market is due to incomplete information disclosure system, serious speculation, and lack of relevant rules and norms, in particular, lack of arbitrage mechanism. On this basis, we come up new ideas about the development of China warrants market, which proposes the supervisor take into account the system construction both in the warrants market and in the stock market and improve the two markets'short selling function. The sixth part proposes specific methods about the development of warrants market: 1.Don't focus on a single warrant market system innovation, instead, strengthen on the design of the system coordination and cooperation between the two markets, strengthen short selling mechanism of the stock market, and strengthen information disclosure system. 2. Based on the previous research results and the successful experience in overseas markets, we try to rebuild the issuing system, trading system and settlement system of the warrants market. 3. We propose new regulation ideas, which are to strengthen cross-market supervision.?...