DETERMINANTS OF COVERED WARRANT TRADING VOLUME Evidence from DAX Turbo Warrants in Helsinki Stock Exchange

Abstract

Covered warrants were first introduced in Finland on December 8th 2000. Trading with covered warrants has notably increase every year and especially in the last four years. Covered warrants are option like securities issued by third party. With the possibility for very high percentage return with small capital makes covered warrants popular among individual investors. The purpose of this thesis is to find out whether the return of the underlying asset and investor sentiment impact the volume of the issued warrant in the following month.

This thesis is based on data of warrants trading volume, return of underlying asset and changes in investor sentiment in years 2005-2007. DAX index is the underlying asset of the warrants and the consumer confidence index is measuring investor’s sentiment. Turbo- DAX warrants are the most traded warrants in Finland and that is why they are chosen to represent warrant data. Regression analysis is used for discussing the data.

The results show that return of underlying asset and changes in investor sentiment does not affect trading volume on covered warrants. However, if significance level 0,1 is used, consumer confidence index does have an impact on trading volume of put warrants. Results show that, if investors sentiment is high, the volume of put warrants decreases in the following month.