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NBER Working Papers and Publications
|November 2009||The Chinese Warrants Bubble|
with Wei Xiong: w15481
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.
Published: Wei Xiong & Jialin Yu, 2011. "The Chinese Warrants Bubble," American Economic Review, American Economic Association, vol. 101(6), pages 2723-53, October. citation courtesy of
|February 2008||High Frequency Market Microstructure Noise Estimates and Liquidity Measures|
with Yacine Ait-Sahalia: w13825
Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure noise to observable characteristics of the underlying stocks, and in particular to different financial measures of their liquidity. We find that more liquid stocks based on financial characteristics have lower noise and noise-to-signal ratio measured from their high frequency returns. We then examine whether there exists a common, market-wide, factor in high frequency stock-level measurements of noise, and whether that factor is priced in asset returns.
Published: Ait-Sahalia, Yacine and Jialin Yu "High Frequency Market Microstructure Noise Estimates and Liquidity Measures," Annals of Applied Statistics, 2009, 3, 422-457.