IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v6y1996i3p259-76.html
   My bibliography  Save this article

Tests of the Efficiency of the U.S. Rights Offering Market: An Option Pricing Approach

Author

Listed:
  • Bae, Sung C
  • Levy, Haim

Abstract

The efficiency of the U.S. market for stock purchase rights is empirically analyzed in an option framework, in which prices of rights, given the prices of underlying stock, are examined with regard to the possibilities of actually earning above-normal profits, considering the risk taken. Two neutral tests for market efficiency, along with a simple buy-and-exercise trading strategy, are applied to daily trade rights data. Results from ex-post hedging tests suggest that the trading strategy based on the rights valuation model is able to differentiate between overpriced and underpriced rights so as to generate substantial book profits. The positive ex-ante hedge return, found to exist empirically, is completely eliminated once transaction costs are introduced, lending support for the efficient U.S. rights offering market on an after-transaction cost basis. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Bae, Sung C & Levy, Haim, 1996. "Tests of the Efficiency of the U.S. Rights Offering Market: An Option Pricing Approach," Review of Quantitative Finance and Accounting, Springer, vol. 6(3), pages 259-276, May.
    • Handle: RePEc:kap:rqfnac:v:6:y:1996:i:3:p:259-76
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:6:y:1996:i:3:p:259-76. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.