The Chinese Warrants Bubble

42 Pages Posted: 9 Nov 2009 Last revised: 21 Oct 2021

See all articles by Wei Xiong

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Jialin Yu

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: November 2009


In 2005-08, over a dozen put warrants traded in China went so deep out of the money that they were certain to expire worthless. Nonetheless, each warrant was traded nearly three times each day at substantially inflated prices. This bubble is unique, because the underlying stock prices make the zero warrant fundamentals publicly observable. We find evidence supporting the resale option theory of bubbles: investors overpay for a warrant hoping to resell it at an even higher price to a greater fool. Our study confirms key findings of the experimental bubble literature and provides useful implications for market development.

Suggested Citation

Xiong, Wei and Yu, Jialin, The Chinese Warrants Bubble (November 2009). Available at SSRN:

Wei Xiong (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jialin Yu

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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