ABSTRACT The warrant price fluctuated in a range based on the arbitrage-free hypothesis. However, in the actual transaction, the warrant price will deviate the price range because of the investor sentiment, sometimes the deviation is too far that the actual price breaks the lower limit based on the arbitrage-free hypothesis, which make the market some arbitrage opportunities. The buyers’ strength and the sellers’ strength are the concentrated expression of the investor sentiment. According to the buyers’ strength and the sellers’ strength, a warrant price modification factor has been built with investor sentiment by function transformation. The new function adjusts the theoretical price range and identifies the arbitrage opportunities of the warrant market. The empirical test on Baotou Steel warrants shows that, after the adjustment, only a few the actual price deviates from the adjustment price range and the correction is better. So, when the warrant price trend is analyzed, the impact of the investor sentiment should be taken into account.
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