The link between intraday signals and call warrant mispricing

Yueh-Neng Lin, Shih-Kuo Yeh, Shih-Ching Chuan and Steven J. Jordan

The Service Industries Journal, 2008, vol. 30, issue 13, 2273-2288

Abstract: This study proposes a linkage between intraday variables (signal amounts and signal duration) and the mispricing of Taiwan call warrant prices, based on the lower boundary condition of Merton [1973. Theory of rational option pricing. Bell Journal of Economics and Management Science , 4 (1), 141--183] as modified by Galai [1978. Empirical tests of boundary conditions for CBOE options. Journal of Financial Economics , 9 (2), 321--346]. Trading mispriced call warrants associated with a riskless hedging strategy over the period January 2004--December 2005 on average produces abnormal profits after taking into account transaction costs, as indicative of an inefficient market.

Date: 2008
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DOI: 10.1080/02642060802629885

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