Resale options and heterogeneous beliefs

Kai‐Min Huang, I‐Doun Kuo and Rong‐Tsorng Wang

Journal of Futures Markets, 2022, vol. 42, issue 6, 1067-1083

Abstract: The resale option theory states investors buy an asset containing a resale option where the value is tied to differences in opinion and short‐sale constraints. This study tests the validity of the resale option theory using warrants sold by individuals to other individuals in Taiwan. The findings of this study support the resale option theory. First, heterogeneous beliefs concerning warrant fundamentals and the fluctuation of heterogeneous beliefs are positively related to resale options. Second, when the estimation accounts for the float, risk‐bearing ratio, and floats relative to risk‐bearing capacity, the theory is valid. Third, the theory holds under the convergence of opinion differences around earnings announcements because resale options have a stronger link before the announcements than after the events. Finally, the holding‐period returns over the short‐term horizon are positive under an increase in opinion differences, consistent with the theory of resale options.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/fut.22319

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:42:y:2022:i:6:p:1067-1083

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().