Empirical Test of the Efficiency of UK Covered Warrants Market: Stochastic Dominance and Likelihood Ratio Test Approach
45 Pages
Posted: 3 Feb 2010
University of Macau
affiliation not provided to SSRN
Yuan-Ze University - Department of Finance
Asia University, Department of Finance
Date Written: February 2, 2010
Abstract
This paper first examines the efficiency of the UK covered warrants market by adopting a stochastic dominance (SD) approach to examine market efficiency. Our empirical analyses reveal that neither covered warrants nor the underlying shares stochastically dominate each other, which implies that the UK covered warrants market is efficient. To complement the SD results, the likelihood ratio (LR) test statistic is also employed to evaluate market efficiency, which also offers consistent results. The empirical evidence serves as a reference for market participants who are interested in covered warrants and also contributes to the growing body of academic knowledge on this new financial instrument.
Keywords: Stochastic dominance, Market efficiency, Covered warrants, Bootstrap
JEL Classification: C14, G11, G14, G15
Suggested Citation:
Suggested Citation
Qiao, Zhuo and de Peretti, Christian and Chan, Chia-Ying and Wong, Wing-Keung, Empirical Test of the Efficiency of UK Covered Warrants Market: Stochastic Dominance and Likelihood Ratio Test Approach (February 2, 2010). Available at SSRN: https://ssrn.com/abstract=1546355 or http://dx.doi.org/10.2139/ssrn.1546355
