Abstract
Derivative warrants typically have higher prices than do otherwise identical options. Using data from the Hong Kong market during 2002-2007, we show that the price difference reflects the liquidity premium of derivative warrants over options. Newly issued derivative warrants are much more liquid than options with similar terms. As a result, long-term derivative warrants are preferred by traders who trade frequently. In spite of their higher prices, short-term returns on long-term derivative warrants are, in fact, higher than the hypothetical short-term returns on options. The differences in price and liquidity measures decline as the contracts get closer to maturity. Foster School of Business, University of Washington 2011.
Original language | English |
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Pages (from-to) | 275-297 |
Number of pages | 23 |
Journal | Journal of Financial and Quantitative Analysis |
Volume | 46 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Feb 2011 |
Externally published | Yes |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics