Completely Predictable and Fully Anticipated? Step Ups in Warrant Exercise Prices

15 Pages Posted: 23 Dec 2004

See all articles by Luis García-Feijóo

Luis García-Feijóo

Florida Atlantic University - Department of Finance

John S. Howe

University of Missouri at Columbia - Department of Finance

Tie Su

University of Miami - Department of Finance

Date Written: December 21, 2004

Abstract

Some warrants are issued with a scheduled increase in their exercise price. This increase, referred to as a "step up" in exercise price, occurs after the warrant is issued but prior to its expiration. We examine the price behavior of warrants and common stock at the scheduled step up date. The evidence suggests that the market correctly anticipates this event, and that warrantholders exercise (actually, refrain from exercising) rationally.

Keywords: Warrants, Market Efficiency, Exercise Price, Step-up

JEL Classification: G13, G14

Suggested Citation

Garcia-Feijoo, Luis and Howe, John S. and Su, Tie, Completely Predictable and Fully Anticipated? Step Ups in Warrant Exercise Prices (December 21, 2004). CORI Working Paper No. 2004-15, Available at SSRN: https://ssrn.com/abstract=638761 or http://dx.doi.org/10.2139/ssrn.638761

Luis Garcia-Feijoo (Contact Author)

Florida Atlantic University - Department of Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States
954-236-1239 (Phone)

John S. Howe

University of Missouri at Columbia - Department of Finance ( email )

224 Middlebush Hall
Columbia, MO 65211
United States
573-882-5357 (Phone)
573-884-6296 (Fax)

Tie Su

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-1885 (Phone)
305-284-4800 (Fax)

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