Let there be warrants: the case of Greece

Abstract

The use of equity warrants has spread at a geometric rate around the world's capital markets. Following the mature equity markets, many Asian stock exchanges have seen the introduction of equity warrants in the past decade. The debt crisis and the need for recapitalisation of banks' capital have brought warrants in the striving Greek market as well. This paper focuses on the so far performance of equity warrants of banks that were introduced in 2013; all of them are Bermuda-type options, call warrants with an exercise date frequency of six months. Hitherto evidence shows that in the majority of the time the warrants remain out-of-the-money with a single case exception. Delta values have been reflecting this situation but investors continue on trading warrants, even exercising them. We support that this is a result of the fact the vast majority of domestic investors are not trained and cannot take rational decisions. Imperfect information combined with the speculation that warrants could be resold at a higher price in the future, are the main reasons of the market's inefficiency.