Investor Behavior towards Trading Derivative Warrants and Underlying Assets in the Stock Exchange of Thailand
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Derivative warrant order imbalance causes market makers to hedge their inventory risk by purchasing the underlying stock at delta quantities. As a result, the information on the derivative warrant trading imbalance transmits to the underlying stock. To study the effect of information, this research has divided the trading imbalance into the order imbalance of derivative warrants and the order imbalance of underlying assets. The result shows that derivative warrants order imbalance can carry information to the underlying stock and causes the underlying price readjustment in the next day. However, the underlying asset order imbalance reveals only the effect of price pressure. When analyzing the intraday transaction, the derivative warrants show a positive correlation to the underlying asset return over the next 30 minutes of any interval. Thus, this research concludes that the derivative warrants trading comprised of informative trading which reduces the information asymmetry.
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