The Chinese Warrants Bubble
American Economic Review · 2011 · Volume 101 · Issue 6
Abstract
In 2005-2008, over a dozen put warrants traded in China went so deep out of the money that they were almost certain to expire worthless. Nonetheless, each warrant was traded more than three times each day at substantially inflated prices. This bubble is unique in that the underlying stock prices make warrant fundamentals publicly observable and that warrants have predetermined finite maturities. This sample allows us to examine a set of bubble theories. In particular, our analysis highlights the joint effects of short-sales constraints and heterogeneous beliefs in driving bubbles and confirms several key findings of the experimental bubble literature. (JEL G12, G13, O16, P34)
Keywords
Asset Pricing, Trading volume, Bond Interest Rates, Contingent Pricing, Futures Pricing, option pricing, Economic Development: Financial Markets, Saving and Capital Investment, Corporate Finance and Governance, Socialist Institutions and Their Transitions: Financial Economics
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