Completely Predictable and Fully Anticipated? Step Ups in Warrant Exercise Prices
15 Pages Posted: 23 Dec 2004
Date Written: December 21, 2004
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: Suggested Citation