The Chinese Warrants Bubble: Evidence from Brokerage Account Records

7th Miami Behavioral Finance Conference 2016

Review of Financial Studies (Forthcoming)

68 Pages Posted: 23 Aug 2016 Last revised: 7 Jan 2020

See all articles by Neil D. Pearson

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance

Zhishu Yang

Tsinghua University - School of Economics & Management

Qi Zhang

Durham University

Date Written: November 4, 2017

Abstract

We use brokerage account records to study trading during the Chinese put warrants bubble and find evidence consistent with extrapolative theories of speculative asset price bubbles. We identify the event that started the bubble and show that investors engaged in a form of feedback trading based on their own past returns. The interaction of feedback trading with the precipitating event caused additional buying and price increases in a feedback loop, and estimates of the trading volume due to this mechanism explain prices and returns during the bubble.

Keywords: Speculative bubble, feedback loop, precipitating event, feedback trading, social contagion

JEL Classification: G12, G13, G14, O16, P34

Suggested Citation

Pearson, Neil D. and Yang, Zhishu and Zhang, Qi, The Chinese Warrants Bubble: Evidence from Brokerage Account Records (November 4, 2017). 7th Miami Behavioral Finance Conference 2016, Review of Financial Studies (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2824033 or http://dx.doi.org/10.2139/ssrn.2824033

Neil D. Pearson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0490 (Phone)
217-244-9867 (Fax)

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

Qi Zhang

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

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