Speculation Spillovers

Yu-Jane Liu (), Zheng Zhang () and Longkai Zhao ()
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Yu-Jane Liu: Guanghua School of Management, Peking University, Beijing 100871, China
Zheng Zhang: Guanghua School of Management, Peking University, Beijing 100871, China
Longkai Zhao: Guanghua School of Management, Peking University, Beijing 100871, China

Management Science, 2015, vol. 61, issue 3, 649-664

Abstract: This paper demonstrates that speculative activities can be contagious and spill over across markets. Specifically, we test the hypothesis that during China's warrants bubble period, speculative activities in the warrants market grabbed investors' attention and caused them to trade more speculatively in the underlying stocks. Consistent with this hypothesis, we find that turnover and return volatility of the underlying stocks are positively associated with the warrants' unexpected turnover and price deviation from their fundamental values during the previous day, controlling for information-driven trading and hedging motives, and that such a spillover effect is more pronounced when warrants attract more investor attention.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1914 . This paper was accepted by Wei Xiong, finance .

Keywords: speculation; contagious; behavioral bias (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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