Empirical Test of the Efficiency of UK Covered Warrants Market: Stochastic Dominance and Likelihood Ratio Test Approach

45 Pages Posted: 3 Feb 2010  

Zhuo Qiao

University of Macau

Christian de Peretti

affiliation not provided to SSRN

Chia-Ying Chan

Yuan-Ze University - Department of Finance

Wing-Keung Wong

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

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

Zhuo Qiao

University of Macau ( email )

P.O. Box 3001
Macau

Christian De Peretti

affiliation not provided to SSRN

Chia-Ying Chan

Yuan-Ze University - Department of Finance ( email )

320 Chungli
Taiwan

Wing-Keung Wong (Contact Author)

Asia University, Department of Finance ( email )

Taiwan
Taiwan

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