The Chinese Warrants Bubble

Wei Xiong and Jialin Yu
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Wei Xiong: Princeton University
Jialin Yu: Columbia University

No 1398, Working Papers from Princeton University, Department of Economics, Econometric Research Program.

Abstract: In 2005-2008, over a dozen put warrants traded in China went so deep out of the money that they were almost certain to expire worthless. Nonetheless, each warrant was traded more than three times each day at substantially inflated prices. This bubble is unique in that the underlying stock prices make warrant fundamentals publicly observable and that warrants have predetermined finite maturities. This sample allows us to examine a set of bubble theories. In particular, our analysis highlights the joint effects of short-sales constraints and heterogeneous beliefs in driving bubbles and confirms several key findings of the experimental bubble literature.

Keywords: financial bubbles; warrents; China; stock market (search for similar items in EconPapers)
JEL-codes: G12 G13 O16 P34 (search for similar items in EconPapers)
Date: 2011-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (140)

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