The Impact of Warrant Introduction: The Australian Experience

Michael Clarke, Gerard Gannon () and Russell Vinning
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Gerard Gannon: School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Victoria, 3125, Australia
Russell Vinning: School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Victoria, 3125, Australia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2011, vol. 14, issue 02, 213-269

Abstract: The main purpose of this paper is to examine the impact that the introduction of exchange traded derivative warrants has on the underlying securities' price, volume and volatility in the Australian market. The impact that derivative trading has on the underlying security is essential to our understanding of security market behaviour and important in the fields of market efficiency and pricing of derivatives. The major findings of significant negative abnormal returns, reduction in skewness, no change in beta and small changes in variance are consistent with recent research findings in the US, UK and Hong Kong. However, the findings of derivative warrant listing resulting in decreased trading volume is in contrast with most prior research in the field. The results of this research, showing a negative price impact, decreased volume and no change in risk, and other recent empirical findings such as Mayhew and Mihov (2000) or Faff and Hillier (2003), indicate a requirement for further development of the theoretical frameworks.

Keywords: Derivatives; warrants; market efficiency; event study (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S021909151100224X

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