The link between intraday signals and call warrant mispricing

This study proposes a linkage between intraday variables (signal amounts and signal duration) and the mispricing of Taiwan call warrant prices, based on the lower boundary condition of Merton [1973. Theory of rational option pricing. <italic>Bell Journal of Economics and Management Science</italic>, <italic>4</italic>(1), 141--183] as modified by Galai [1978. Empirical tests of boundary conditions for CBOE options. <italic>Journal of Financial Economics</italic>, <italic>9</italic>(2), 321--346]. Trading mispriced call warrants associated with a riskless hedging strategy over the period January 2004--December 2005 on average produces abnormal profits after taking into account transaction costs, as indicative of an inefficient market.