The Warrants Market Research, And The Basis Of Market Relations

Warrant for investors in China is not a complete novelty. We have once introduced warrant market between 1992 and 1996, while the result was unsatisfactory. Warrant market is established again in the non-tradable share reform in 2005, and the warrant market in mainland China enjoys fairly fast growth, the total warrant turnover on the Shanghai and Shenzhen Stock Exchanges exceeds that of Hong Kong and German and becomes the largest warrant market around the world in less than two years. Warrant has become the new highlight of China's security market. Warrant is a kind of derivative basing on underlying stocks, that is to say, it derives from underlying stocks. So the correlation between warrant market and underlying market has become scholars,investors and supervisors' concern. However, currently there are hardly any theories or empirical study on this field.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. Then the paperwork selected a whole stock index cycle and divided it into three parts: stock market rising,fluctuation and stock market falling period. For studying the internal relativities on volatility between SH and SZ warrants and underlying stocks, a bivariate EGARCH model is developed that includes cointegrating residuals as an explanatory variable for the conditional mean and the conditional variance, that also includes interactive Garch residual as an explanatory variable for the conditional variance. This paper also tests the causality relationship between call warrants of security and their underlying stocks in SH and SZ by using the approach of Granger-causality.The results show that the cointegrating residual can be a more important explanatory variable for the price of underlying stocks and their volatility more than vice versa. Moreover, there are spillover effects in both call warrants and underlying stocks.In the end, through the conclusion derived from the empirical study, the paperwork proposed some advices or the further development of the warrant market and the establishment of the financial derivatives market.