The pricing efficiency of Malaysian equity warrants: studies using black scholes option pricing model (BSOPM)

Haron, Razali (2006) The pricing efficiency of Malaysian equity warrants: studies using black scholes option pricing model (BSOPM). In: MFA's 7th. Annual Conference , 6-7 May, 2005, Dungun, Terengganu.

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Abstract

The objective of this paper is to determine the pricing efficiency and behavior of equity warrants traded in the Bursa Malaysia. Specifically, this paper will focus on the studies of 85 randomly selected samples of listed warrants (46 main board warrants, while the remaining 39 were second board warrants) for the trading period of 100 days from January 1, 2004 until May 31, 2004. The model for pricing of warrants in this study will be primarily based on the Black-Scholes Option Pricing Model (BSOPM). The theoretical price derived using the BSOPM will then be adjusted to incorporate the dilution effect. The adjusted theoretical pricing will afterward be compared with the actual market prices of warrants to determine the pricing efficiency. The paper will also look into related issues such as the extent of mispricing, factors that could lead to the inefficiencies, volatility of the warrants and the underlying stocks, the behavior of price relationships and appropriate strategies to be adopted with regards to the findings. The study concludes that there is significant mispricing on most of the traded warrants, which can be categorizes as underpriced, overpriced and extremely overpriced. A few warrants, nevertheless, were found to be insignificantly mispriced.

Item Type:	Conference or Workshop Item (Full Paper)
Additional Information:	4581/10838
Uncontrolled Keywords:	Warrants, Mispricing, Dilution, Black-Scholes Option Pricing Model
Subjects:	H Social Sciences > HG Finance > HG4001 Financial management. Business finance. Corporation finance.
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr. Razali Haron
Date Deposited:	18 Dec 2011 09:31
Last Modified:	18 Dec 2011 17:45
URI:	http://irep.iium.edu.my/id/eprint/10838

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