Impact of Warrant Introductions on the Behaviour of Underlying Stocks: Australian Evidence

18 Pages Posted: 2 Feb 2005

See all articles by Michael J. Aitken

Michael J. Aitken

Macquarie Graduate School of Management

Reuben Segara

University of Sydney Business School; Financial Research Network (FIRN)

Abstract

The present study examines the impact of first-time introduction of warrants by third party issuers on the trading behaviour of a sample of underlying stocks listed on the Australian Stock Exchange. We investigate the price, liquidity and volatility impact of underlying stocks after warrant issuance and find considerable differences to those found for option listings. Significant negative abnormal returns on both the announcement and listing date of derivative warrants are reported, followed by a negative price drift. Relative trading volume and price volatility of underlying stocks are found to be significantly higher post-warrant listing. Interestingly, we find that warrant holders are unable to realize gains for the majority of trading days when they are alive, consistent with the view that banks trade profitability from their issue.

JEL Classification: G13, G21

Suggested Citation

Aitken, Michael J. and Segara, Reuben, Impact of Warrant Introductions on the Behaviour of Underlying Stocks: Australian Evidence. Accounting and Finance, Vol. 45, No. 1, pp. 127-144, March 2005. Available at SSRN: https://ssrn.com/abstract=656108

Michael J. Aitken (Contact Author)

Macquarie Graduate School of Management ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Reuben Segara

University of Sydney Business School ( email )

Sydney
Australia
+61 2 9351 8790 (Phone)
+61 2 9351 6461 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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