Share This Article:

Warrant Price Range Adjustment Based on Investor Sentiment

Abstract Full-Text HTML Download Download as PDF (Size:208KB) PP. 487-493
DOI: 10.4236/jssm.2010.34055    5,170 Downloads   8,223 Views  
Author(s)    Leave a comment

ABSTRACT

The warrant price fluctuated in a range based on the arbitrage-free hypothesis. However, in the actual transaction, the warrant price will deviate the price range because of the investor sentiment, sometimes the deviation is too far that the actual price breaks the lower limit based on the arbitrage-free hypothesis, which make the market some arbitrage opportunities. The buyers’ strength and the sellers’ strength are the concentrated expression of the investor sentiment. According to the buyers’ strength and the sellers’ strength, a warrant price modification factor has been built with investor sentiment by function transformation. The new function adjusts the theoretical price range and identifies the arbitrage opportunities of the warrant market. The empirical test on Baotou Steel warrants shows that, after the adjustment, only a few the actual price deviates from the adjustment price range and the correction is better. So, when the warrant price trend is analyzed, the impact of the investor sentiment should be taken into account.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

X. Fang, "Warrant Price Range Adjustment Based on Investor Sentiment," Journal of Service Science and Management, Vol. 3 No. 4, 2010, pp. 487-493. doi: 10.4236/jssm.2010.34055.

References

[1] M. Q. Jin, “The Rationality Analysis of Warrant Price in China,” Times Finance, Vol. 19, No. 4, 2006, pp. 36-37.
[2] H. Z. Sun, “The Call Warrant Price Analysis: An Example for BAOSTEEL Warrant,” South China Finance, Vol. 11, No. 1, 2006, pp. 55-57.
[3] X. X. Li, C. P. Yang and W. Jiang, “Behavioral Asset Pricing Model Based on Investor Sentiment,” Journal of Qingdao University (Natural Science Edition),” Vol. 21, No. 4, 2008, pp. 95-98.
[4] Y. R. Wu and L. Y. Han, “Explanations of Strange Financial Phenomena Based on the Investor Sentiment,” Journal of Shanxi Finance and Economics University, Vol. 31, No. 2, 2009, pp. 95-100.
[5] Detemple amd Selden, “A General Equilibrium Analysis of Option and Stock Market Interactions,” International Economic Review, Vol. 10, No. 32, 1991, pp. 279-303.
[6] K. Back, “Asymmetric Information and Options,” Reviews of Financial Studies, Vol. 6, No. 3, 1993, pp. 435- 472.
[7] J. Michael and H. H. Brennan, “Information, Trade, and Derivative Securities,” Review of Financial Studies, No. 9, 1996, pp. 163-208.
[8] J. Cherian and R. Jarrow, “Options Markets, Self-fulfilling Prophecies and Implied Volatilities,” Review of Derivatives Research, Vol. 10, No. 2, 1998, pp. 5-37.
[9] J. B. DeLong, A. Shleifer, L. H. Summers and R. J. Waldmann, “Noise Trader Risk in Financial Markets,” Journal of Political Economy, Vol. 98, No. 4, 1990, pp. 703-738.
[10] Barberis, A. Shleifer and R. Vishny, “A Model of Investor Sentiment,” Journal of Financial Economics, Vol. 49, No. 3, 1998, pp. 307-343.
[11] K. Daniel, D. Hirshleifer and A. Subrahmanyam, “Investor Psychology and Security Market Under- and Overreactions,” Journal of Finance, Vol. 53, No. 6, 1998, pp. 1839-1885.
[12] H. Hong and J. C. Stein, “A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets,” Journal of Finance, Vol. 54, No. 6, 1999, pp. 2143-2184.
[13] K. L. Fisher and M. Statman, “Consumer Confidence and Stock Returns,” Journal of Portfolio Management, Vol. 30, No. 1, 2003, pp. 115-128.
[14] W. Antweiler and M. Frank, “Is All That Talk Just Noise? The Information Content of Internet Stock Message Boards,” The Journal of Finance, Vol. 59, No. 3, 2004, pp. 1259-1294.
[15] P. Tetlock, “Giving Content to Investor Sentiment: The Role of Media in the Stock Market,” The Journal of Finance, Vol. 62, No. 3, 2007, pp. 1139-1168.
[16] M. Burghardt, M. Czink and R. Riordan, “Retail Investor Sentiment and the Stock Market,” Working Paper, 29 February 2008.
[17] A. Bandopadhyaya and A. L. Jones, “Measuring Investor Sentiment in Equity Markets,” Working Paper, February 2005.
[18] M. Bhattacharya, “Price Changes of Related Securities: The Case of Call Options and Stocks,” Journat of Financial and Quantitative Analysis, No. 22, 1987, pp. 1-15.
[19] P. Christophe, “Testing the Monotonicity Property of Option Prices,” The Journal of Derivatives, 2006, pp. 61-76.

  
comments powered by Disqus

Copyright © 2018 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.