Effect of dividend on derivative warrants : evidence from stock exchange of Thailand

Abstract

The purpose of this paper is to investigate mispricing of derivative warrants on ex-dividend date. Using data from the Stock Exchange of Thailand during 2010 to 2020, this research examines mispricing of derivative warrants by comparing the market price to the theoretical price, which incorporates the adjustment of exercise price and ratio on ex-dividend date according to the rules given by SET. This research also studies further by investigating the magnitude of impact from the dividend yield of underlying asset. The empirical results show strong evidence of mispricing in call derivative warrants, whereas put derivative warrants are found to be weakly statistically overpriced. Furthermore, dividend yield of underlying asset is indeed highly correlated to the magnitude of mispricing, as high dividend yield stocks have more underpriced call derivative warrants and as well more overpriced put derivative warrants.