The Impact of Warrant Introduction Australian Experience

The impact that derivative trading has on the underlying security is essential to our understanding of security market behaviour, and important in the fields of market efficiency and pricing of such derivatives. This paper examines the impact that the introduction of exchange traded derivative warrants has on the underlying securities’ price, volume and volatility in the Australian market. The major findings of significant negative abnormal returns, reduction in skewness, no change in beta and small changes in variance are consistent with recent research findings in the US, UK and Hong Kong. However findings of derivative warrant listing resulting in decreased trading volume in contrast with most prior research in the field.Derivatives, Warrants, Market Efficiency, Event Study.

A resource-advantage perspective on pricing: shifting the focus from ends to means-end in pricing research?

This paper contributes to a long-lasting debate between practitioners who argue that academia is unable to understand what pricing is all about and academics who criticize practitioner pricing approaches for lacking rigor or rationality. The paper conceptualizes a resource-advantage (R-A) perspective on pricing by drawing on the R-A theory of competition. After a review of R-A theory, the paper integrates the price discretion concept and pricing as a spanning competence by introducing a separation between resources that create and resources that extract value, thereby expanding R-A theory to pricing. The perspective aims to shed light on how the process of competition helps organizations to learn/benefit from pricing capabilities. The research shifts the focus of pricing research from an equilibrium-based static view to a dynamic, disequilibrium-provoking pricing competence. In this way, it draws attention to what is perhaps most relevant to pricing in practice: the actual means necessary to determine price

Growth Optimal Investment and Pricing of Derivatives

We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant to the problem of pricing derivatives. We compare our result with other alternative pricing procedures in the literature, and discuss the limits of validity of the lognormal approximation. We also generalize the pricing method to a market with correlated stocks. The expected estimation error of the optimal investment fraction is derived in a closed form, and its validity is checked with a small-scale empirical test.Comment: 21 pages, 5 figure

Measures of Brand Loyalty

Though brand loyalty has been studied extensively in the marketing literature, the relationship between brand loyalty and equilibrium pricing strategies is not well understood. Designing sales pricing strategies involves two key decisions: the percentage reduction in price from the existing price point, and the number or frequency of promotions within a category or for a specific product. These decisions, in turn, are critically dependent upon how many consumers can be convinced to switch to a brand by temporarily reducing its price, and how many are instead brand loyal. Theoretical models of how the size and strength of brand loyalty influence optimal promotion strategies have been developed, but there are no rigorous tests of their hypotheses. We test how brand loyalty impacts promotion strategies for a frequently purchased consumer package good category. Our results largely confirm that retailers often promote many brands simultaneously and that depth and breadth can be complementary.Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Marketing,

Testing the Warrants Mispricing and Their Determinants: the Panel Data Models

This paper empirically studied the impact of several variables such as moneyness, stock return, maturity, and volatility on the warrant mispricing. We selected 4 companies listed in Bursa Malaysia such as MHC Plantations Bhd, MKH Bhd, YFG Bhd, and UNISEM to investigate the mispricing of warrants. Subsequently, panel time series data employed with daily basis from 30 June 2010 until 30 June 2013. The Black-Scholes Option Pricing Model (BSOPM) used to determine the mispricing of warrant. Several panel data techniques employed in this study such as pooled-OLS, fixed effect model (FEM), and random effect model (REM). In turn, we found that FEM is well explained the determinants of warrant mispricing. Thus, empirical results suggest that moneyness, maturity, and volatility are positively and significantly explained the mispricing of warrant, while stock return does not give an impact toward the warrant mispricing. The BSOPM is consistently mispricing the warrant either in-the-money (ITM) or out-the money (OTM) warrants. The market is not efficient on the warrants traded for four companies observe

Volatility and stock market direction: a study on emerging markets.

Volatility indices, such VIX, can be used for determining stock market direction. In this paper, we analyze the relationship between changes in the VIX direction and changes in the turning point of S&P 500 and the MSCI Latin-America Emerging Market index, in order to see whether they anticipate the changes. Also, the volatility of emerging markets measured by standard deviation and their relationship with the stock market movements within this market are calculated, since the greater the value of the volatility, the greater the likelihood of a rise or fall. In order to locate the turning point and the upward and downward phases of the cycles, empirical methods are applied and are characterized by using a set of decision rules that reflect the practical experience gained by analysts. Our conclusions include: Turning points, or peaks and troughs, in the VIX are coincident with peaks and troughs in the opposite direction for the S&P 500 index and in emerging markets

Reciprocity as a foundation of financial economics

This paper argues that the subsistence of the fundamental theorem of contemporary financial mathematics is the ethical concept ‘reciprocity’. The argument is based on identifying an equivalence between the contemporary, and ostensibly ‘value neutral’, Fundamental Theory of Asset Pricing with theories of mathematical probability that emerged in the seventeenth century in the context of the ethical assessment of commercial contracts in a framework of Aristotelian ethics. This observation, the main claim of the paper, is justified on the basis of results from the Ultimatum Game and is analysed within a framework of Pragmatic philosophy. The analysis leads to the explanatory hypothesis that markets are centres of communicative action with reciprocity as a rule of discourse. The purpose of the paper is to reorientate financial economics to emphasise the objectives of cooperation and social cohesion and to this end, we offer specific policy advice

British research in accounting and finance (2001–2007): the 2008 research assessment exercise

No abstract available

Long Memory Options: Valuation

This paper graphically demonstrates the significant impact of the observed financial market persistence, i.e., long term memory or dependence, on European option valuation. Many empirical researchers have observed non-Fickian degrees of persistence or long memory in the financial markets different from the Fickian neutral independence (i.i.d.) of the returns innovations assumption of Black-Scholes' geometric Brownian motion assumption. Moreover, Elliott and van der Hoek (2003) have now also provided a theoretical framework for incorporating these findings in the Black-Scholes risk-neutral valuation framework. This paper provides the first graphical demonstration why and how such long term memory phenomena change European option values and provides thereby a basis for informed long term memory arbitrage. Risk-neutral valuation is equivalent to valuation by real world probabilities. By using a mono-fractional Brownian motion, it is easy to incorporate the various degrees of persistence into the binomial and Black-Scholes pricing formulas. Long memory options are of considerable importance in Corporate remuneration packages, since warrants are written on a company's own shares for long expiration periods. Therefore, we recommend that for a proper valuation of such warrants, the degrees of persistence of the companies' share markets are measured and properly incorporated in the warrant valuation.Options, Long Memory, Persistence, Hurst Exponent, Executive Remuneration

Testing The Warrants Mispricing and Their Determinants: The Panel Data Models

This paper empirically studied the impact of several variables such as moneyness, stock return, maturity, and volatility on the warrant mispricing. We selected 4 companies listed in Bursa Malaysia such as MHC Plantations Bhd, MKH Bhd, YFG Bhd, and UNISEM to investigate the mispricing of warrants. Subsequently, panel time series data employed with daily basis from 30 June 2010 until 30 June 2013. The Black-Scholes Option Pricing Model (BSOPM) used to determine the mispricing of warrant. Several panel data techniques employed in this study such as pooled-OLS, fixed effect model (FEM), and random effect model (REM). In turn, we found that FEM is well explained the determinants of warrant mispricing. Thus, empirical results suggest that moneyness, maturity, and volatility are positively and significantly explained the mispricing of warrant, while stock return does not give an impact toward the warrant mispricing. The BSOPM is consistently mispricing the warrant either in-the-money (ITM) or out-the money (OTM) warrants. The market is not efficient on the warrants traded for four companies observe