The Chinese Warrants Bubble

Wei Xiong and Jialin Yu

No 15481, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In 2005-08, over a dozen put warrants traded in China went so deep out of the money that they were certain to expire worthless. Nonetheless, each warrant was traded nearly three times each day at substantially inflated prices. This bubble is unique, because the underlying stock prices make the zero warrant fundamentals publicly observable. We find evidence supporting the resale option theory of bubbles: investors overpay for a warrant hoping to resell it at an even higher price to a greater fool. Our study confirms key findings of the experimental bubble literature and provides useful implications for market development.

JEL-codes: G1 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-cna, nep-dev and nep-tra
Note: AP ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Wei Xiong & Jialin Yu, 2011. "The Chinese Warrants Bubble," American Economic Review, American Economic Association, vol. 101(6), pages 2723-53, October.

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