Title

Information Asymmetry in Warrants and their Underlying Stocks on the Stock Exchange of Thailand

Publication Type

Journal Article

Publication Date

6-2011

Abstract

This paper examines the informational role of warrants based on the unique order data from the Stock Exchange of Thailand, where both warrants and stocks are traded under the same market structure and where warrants are as liquid as stocks. The estimated probability of informed trading (PIN) in warrants is found to be statistically higher than their underlying stocks regardless of order submission type and order size. The PIN explains a substantial portion of the cross-sectional variation in the opening spread beyond trading volume and minimum tick size. We find evidence that a signed warrant trade contains information about the future stock price and that warrants with a higher PIN have greater predictive powers.

Keywords

Probability of informed trading (PIN), Warrants, Information asymmetry, Price discovery, Thailand

Discipline

Finance and Financial Management

Research Areas

Finance

Publication

Journal of Empirical Finance

Volume

18

Issue

3

First Page

474

Last Page

487

ISSN

0927-5398

Identifier

10.1016/j.jempfin.2011.02.001

Publisher

Elsevier

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