Work

Informational Content of Warrant Trading Prior to Interim Monthly‐Revenue Report: Evidence From the Taiwan Warrant Market

Year: 2025

Type: article

Abstract: ABSTRACT Taiwan‐listed companies are required to report unaudited net operating revenues monthly. This study examines the information content of trading in the short‐sale‐prohibited domestic warrant market before the interim accounting disclosures by adopting an implied volatility skew (IV skew) as a proxy for informed trading. We find a significantly negative relationship between the pre‐announcement abnormal IV skew of warrants and cumulative abnormal stock return around monthly‐revenue disclosures. The results of the placebo test further suggest that the return predictability of the IV skew is not prevalent in normal periods, but only the pre‐announcement IV skew possesses predictive power toward future stock returns. Furthermore, the predictability of warrants' IV skew on monthly‐revenue announcement return is stronger when the underlying stocks are priced high and weaker when some information about unpublished revenues has been reflected by pre‐announcement stock returns. These findings suggest that informed trading is the driving force behind warrant market activities before monthly‐revenue reporting.

Source: Journal of Futures Markets

DOI: 10.1002/fut.70009

Authors: Che‐Chia Chang, Chao‐Chun Chen, Pin‐Yu Huang

Institutions: Tunghai University, Taipei City Government

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

Funders: National Science and Technology Council, Ministry of Science and Technology, Taiwan, National Science and Technology Council

Award: Informed Trading in Warrants Prior to Earnings Announcements