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Empirical test of the efficiency of the UK covered warrants market: Stochastic dominance and likelihood ratio test approach
Chia-YingChan1; Christian de Peretti2; Zhuo Qiao3; Wing-Keung Wong4
2011-09-17
Source PublicationJournal of Empirical Finance
ISSN0927-5398
Volume19Issue:1Pages:162-174
Abstract

This paper represents the first attempt to apply a stochastic dominance (SD) approach to examine the efficiency of the UK covered warrants market. Our empirical analyses reveal that neither covered warrants nor their underlying shares stochastically dominate the other, indicating the nonexistence of potential arbitrage gains in either wealth or utility, which implies market efficiency. To complement the SD results, we also employ a likelihood ratio (LR) test to examine information efficiency. A bootstrap methodology is developed to correct the size distortion of the LR test. Our findings show that UK covered warrant returns efficiently reflect the return information of the underlying shares.

KeywordCovered Warrants Market Efficiency Stochastic Dominance Bootstrap Likelihood Test
DOIhttps://doi.org/10.1016/j.jempfin.2011.09.001
Indexed BySSCI ; SSCI
WOS Research AreaBusiness & Economics
WOS SubjectBusiness, Finance ; Economics
WOS IDWOS:000300073500010
PublisherELSEVIER SCIENCE BV, PO BOX 211, 1000 AE AMSTERDAM, NETHERLANDS
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Cited Times [WOS]:20   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionFaculty of Business Administration
DEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorZhuo Qiao
Affiliation1.College of Management, Yuan Ze University, Taiwan
2.Laboratory SAF (EA2429), Institute of Financial and Actuarial Sciences, University of Claude Bernard Lyon 1, University of Lyon, France
3.Faculty of Business Administration, University of Macau, Taipa, Macau, China
4.Department of Economics, Hong Kong Baptist University, Kowloon Tong, Hong Kong
Corresponding Author AffilicationFaculty of Business Administration
Recommended Citation
GB/T 7714
Chia-YingChan,Christian de Peretti,Zhuo Qiao,et al. Empirical test of the efficiency of the UK covered warrants market: Stochastic dominance and likelihood ratio test approach[J]. Journal of Empirical Finance,2011,19(1):162-174.
APA Chia-YingChan,Christian de Peretti,Zhuo Qiao,&Wing-Keung Wong.(2011).Empirical test of the efficiency of the UK covered warrants market: Stochastic dominance and likelihood ratio test approach.Journal of Empirical Finance,19(1),162-174.
MLA Chia-YingChan,et al."Empirical test of the efficiency of the UK covered warrants market: Stochastic dominance and likelihood ratio test approach".Journal of Empirical Finance 19.1(2011):162-174.
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