Security Supply and Bubbles: A Natural Experiment from the Chinese Warrants Market
Speaker
Abstract
| Consistent with theory prediction and experimental findings, the availability of short-sale-like security supply mechanism is helpful to mitigate bubble formation in the warrants market in China. We document that the frequency and degree of bubble (excessive over-pricing) for warrants listed at the Shanghai Stock Exchange, where additional warrants issuance (short-salelike mechanism) is practiced, are considerably lower than those for warrants listed at the Shenzhen Stock Exchange, where additional warrants issuance is not practiced. For warrants that experienced new issuance, pricing premiums become significantly smaller. Additional warrant supply, however, cannot completely remove bubbles. Our results provide important field evidence in support of extant experimental results that short sales can reduce bubbles. |
| The Erasmus Finance Seminar is jointly sponsored by ERIM and the Tinbergen Institute. |
| Contact information: |
| Viorel Roscovan |
