Testing the Informational Efficiency of OTC Options on Emerging Market Currencies

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Price:  $15.00

Author/Editor: Armando Méndez Morales, Jorge A. Chan-Lau
Release Date: © January, 2003
ISBN : 978-1-45184-165-7
Stock #: WPIEA0012003
English
Stock Status: Available

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Description

This paper analyzes the informational efficiency of OTC currency options on the Czech koruna and the Polish zloty correcting for the volatility risk premium and errors-in-variable problems, using state-of-the-art techniques (Chernov 2001). It finds that these markets are more efficient than mature markets possibly because of higher relative participation of informed dedicated investors, which offset the effects of relative illiquidity and higher transaction costs in these countries. Moreover, implied volatilities generally anticipate the direction of volatility correctly, with a bias to overpredicting volatility increases reflecting one-sided markets.

Taxonomy

Currencies , Foreign exchange




More publications in this series: Working Papers


More publications by: Armando Méndez Morales ; Jorge A. Chan-Lau