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The Pricing Capacity of Financial Derivatives: Evidence from Warrants in China |
ZHENG Zhen-long DENG Xue-chun |
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Abstract This paper analyzes the pricing capacity of warrants by using the multiple factor linear model. We find that the warrant is nonredundant and useful for explaining risky asset returns. Moreover, this model fits small firms and value stocks better than big firms and growth stocks. We also use the idea of the stochastic discount factor (SDF) and GMM method to conduct a solid test. The two approaches have the same following conclusion from different angles: pricing factors are included in the warrants price, and developing financial derivatives can improve the efficiency of pricing.
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Received: 19 May 2009
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Corresponding Authors:
ZHENG Zhen-long
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