China Butterfly Warrant Issue Empirical Analysis Of The Impact Of The Underlying Stock

In August 2005, in line with the share reform in depth, the companies distributed free of charge to current shareholders of warrants or put warrants, or both jointly distributed (butterfly warrants). As a comeback, warrants have become the focus of capital market and have aroused widespread concern and the massive influx of funds. Warrants open the financial instruments innovative beginning of China's securities market, which is a breakthrough in the development of derivative products. Similar as options as a financial derivative products, the issuance of warrants will have an impact on the underlying assets. Butterfly warrants as the unique combination of warrants will undoubtedly have a unique impact to the underlying security. The paper try to empirically analyze the issue of China's butterfly warrants on the subject of stock transaction activities in the short and long-term impacts.This paper firstly conclude the basic theories of warrants from the definition, classification, characteristic, the value of the properties and effects of factors, which address the actual situation in China's securities market, from investors, issuers, the function and structure of securities, share reform to issued significance, that is mechanisms of conduction that the warrants will have an impact on the underlying security. Then five groups of butterfly warrants and its counterparts of shares issued by the Shanghai Stock Exchange and the Shenzhen Stock Exchange are selected as a sample. Through incident analysis, warrants issued 15 days and 100 days before and after are compared, and the 200-day after the listing of warrants, the underlying stock trading volume, price, yield, volatility, beta values are also compared. The paper try to understand the market response to the events of warrants issues, and evaluate the effect of issuing warrants. Through the reward abnormal significant test, mean value of yield and the average of homogeneity of variance test, market model, and with virtual variables GARCH model, and regression model to quantify butterfly warrants on the underlying security influences. At last, prospects of China's butterfly warrants development are put forward, and the author hoped that the combination of warrants products are better for our use, and will have a positive and far-reaching significance to the other financial derivative products of future China's securities market.