The Chinese warrants bubble

Wei Xiong, Jialin Yu

Research output: Contribution to journalArticle

88 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)2723-2753
Number of pages31
JournalAmerican Economic Review
Volume101
Issue number6
DOIs
StatePublished - Oct 1 2011

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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