The link between intraday signals and call warrant mispricing

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This study proposes a linkage between intraday variables (signal amounts and signal duration) and the mispricing of Taiwan call warrant prices, based on the lower boundary condition of Merton [1973. Theory of rational option pricing. Bell Journal of Economics and Management Science, 4(1), 141-183] as modified by Galai [1978. Empirical tests of boundary conditions for CBOE options. Journal of Financial Economics, 9(2), 321-346]. Trading mispriced call warrants associated with a riskless hedging strategy over the period January 2004-December 2005 on average produces abnormal profits after taking into account transaction costs, as indicative of an inefficient market.
Publisher
Routledge Journals
Issue Date
2010
Language
English
Article Type
Article
Keywords

INDEX OPTIONS; BOUNDARY-CONDITIONS; EFFICIENCY; MARKETS; TESTS

Citation

SERVICE INDUSTRIES JOURNAL, v.30, no.13, pp.2273 - 2288

ISSN
0264-2069
URI
http://hdl.handle.net/10203/95355
Appears in Collection
RIMS Journal Papers
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