Title

The Chinese Warrants Bubble

Author(s)

Wei Xiong Wei Xiong (Princeton University)

Jialin Yu Jialin Yu (Columbia University)

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.

Creation Date

2011-10

Section URL ID

ET

Paper Number

wp038_Xiong_yu.pdf

URL

http://detc.princeton.edu/wp-content/uploads/2016/11/wp038_Xiong_yu.pdf

File Function

Jel

O16, P34, G12, G13

Keyword(s)

financial bubbles, warrents, China, stock market

Suppress

false

Series

10