A Study On Chinese Warrants Bubble

Through the study of Chinese warrants market,this paper aims to conduct examination and analysis of the Chinese warrants market bubbleby applying theoretical analysis and empirical analysis method,.Through testing we find that the prevalence of significant Chinese warrants market bubble, either callwarrants or put warrants, the actual price of Chinese warrants is much higher than the theoretical price. The theoretical price compared with the actual price of the warrants,caiculated by future volatility shows that rational expectations cannot explain the warrants market bubble. We also illustrated by the study of linear relationship of warrants’ actual price with the theoretical price that bubble is not caused by the investor overreaction tothe market information. While testingthe correlation coefficient of warrants and their underlying stock price, yield and market index prices, it explains that the warrant speculative bubble was caused by the irrational speculation. Through testing implied volatility, the capsand floors of warrants, we discover that the call warrants have a much greater bubble than call warrants, and by using this conclusion we prove thatgambling effect can explain Chinese warrants market bubble. Binding featuresof mechanism and participants of Chinese warrants market, we find that riding the bubble theory and short restrictions may partially explain the warrants market bubble.