TY  - JOUR
AU  - Xiong,Wei
AU  - Yu,Jialin
TI  - The Chinese Warrants Bubble
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15481
PY  - 2009
Y2  - November 2009
UR  - http://www.nber.org/papers/w15481
L1  - http://www.nber.org/papers/w15481.pdf
N1  - Author contact info:
Wei Xiong
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ  08450
Tel: 609/258-0282
Fax: 609/258-0771
E-Mail: wxiong@princeton.edu

Jialin Yu
421 Uris Hall
Graduate School of Business
Columbia University
3022 Broadway
New York, NY 10027
Tel: 212/854-9140
Fax: 212/316-9180
E-Mail: jy2167@columbia.edu
AB  - In 2005-08, over a dozen put warrants traded in China went so deep out of the money that they were certain to expire worthless. Nonetheless, each warrant was traded nearly three times each day at substantially inflated prices. This bubble is unique, because the underlying stock prices make the zero warrant fundamentals publicly observable. We find evidence supporting the resale option theory of bubbles: investors overpay for a warrant hoping to resell it at an even higher price to a greater fool. Our study confirms key findings of the experimental bubble literature and provides useful implications for market development.
ER  -