The Empirical Study of Volatility Correlation between Warrants and Stocks

[[abstract]]The warrants? high leverage of the financial derivatives is attributed to the investment behavior of Non-qualified Institutional natural persons in Taiwan. Based on the market information: buy-as-the-price-goes-up-and-sell-as-the-price-goes-down strategy and the lower cost of the warrants, they risk to bet against longer odds and expect to gain excess returns in a short time. However, with little knowledge about the basics of warrants, they may suffer great loss. This study intends to analyze warrants and stocks by using the volatility model of time-series. Further, a comparison between this model and others will be made. The result can be listed as follows: (1)The Warrants volatility is influenced by stocks. That is, the issued warrants reduce the stock volatility. (2)Vertical analysis?in comparison with other stock models fitness, this model provides better explanation in that the electronic stock is more suitable. (3)Horizontal analysis?compared with ARCH, GARCH, GJR, the volatility model has better explanation when warrants market is forecasted by EGARCH model