The link between intraday signals and call warrant mispricing |
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| Authors: | Yueh-Neng Lin Shih-Kuo Yeh Shih-Ching Chuan Steven J Jordan |
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| Institution: | 1. Department of Finance , National Chung Hsing University , Taichung, Taiwan, Republic of China ynlin@dragon.nchu.edu.tw;3. Department of Finance , National Chung Hsing University , Taichung, Taiwan, Republic of China;4. KAIST Graduate School of Finance , Seoul, Republic of Korea |
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| Abstract: | 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. |
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| Keywords: | call warrants lower boundary conditions market efficiency signal amount signal duration |
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