PRICE AND VOLUME EFFECTS ASSOCIATED WITH DERIVATIVE WARRANT ISSUANCE AND EXPIRATION ON THE STOCK EXCHANGE OF THAILAND
Post by MSF Chula at Tuesday, 8 August 2017 10:35 AM

This paper used an event study technique to investigate the effect of issuance and expiration
of derivative warrants on both price and trading volume of the underlying stocks in the Stock
Exchange of Thailand during July 2009 to mid-March 2011. The evidence suggests that the
underlying stock prices react positively before the announcement day due to hedging
activities by the derivative warrant issuers. Regarding the first trading day event, there are
negative price effect on the event day and negative volume effect afterwards attributed to
substitution effects that new derivative warrants somewhat attract investors away from the
underlying stocks when they are listed. The positive price effects on 4 and 11 days after the
introduction day result from the information effect of issuance event. The expiration of
derivative warrants causes a temporarily positive price effect immediately after expiration for
in-the-money derivative warrants due to the reversal of substitution effects. The negative
abnormal turnovers on the underlying stocks are found before and on the expiration day due
to the substitution effects that more investors prefer to speculate on intrinsic value of the
derivative warrants in short-term period than on the underlying stocks.

Last updated at Tuesday, 8 August 2017 10:35 AM