Testing the Informational Efficiency of OTC Options on Emerging Market Currencies

Author/Editor: Chan-Lau, Jorge A. ; Méndez Morales, Armando
Publication Date: January 01, 2003
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Summary: 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.
Series: Working Paper No. 03/1
Subject(s): Currencies | Czech Republic | Poland | Emerging markets

Author's Keyword(s): Currency options | efficient markets | Czech Republic | Poland | GMM
Publication Date: January 01, 2003
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0012003 Pages: 24
US$15.00 (Academic Rate:
US$15.00 )
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