The derivative warrant market in Hong Kong: Relationships with underlying assets

The derivative warrant market in Hong Kong fulfills many of the functions of a traded options market, a consequence of the late introduction of options. It offers derivative securities with a life of at least nine months and in the majority of cases two years. This study examines the impact of warrant introductions on the price, volatility, and volume of trading in the underlying security. It finds an increase in volume of trading as a result of the introduction but little impact on volatility. Price effects are also identified, although these effects appear to be temporary and do not persist much beyond the listing of the warrants. On delisting, however, a large negative price effect is observed. These results are of interest not only because they provide information on a market about which little information is available but also because they reveal considerable differences from option listing results in the U.S.