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Author/Editor:
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Chan-Lau, Jorge A. ; Méndez Morales, Armando
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Publication Date:
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January 01, 2003
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Electronic Access:
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Free Full text
(PDF file size is 792KB).
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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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.
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Order a print copy
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Series:
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Working Paper No. 03/1
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Subject(s):
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Currencies | Czech Republic | Poland | Emerging markets
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Author's Keyword(s):
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Currency options | efficient markets | Czech Republic | Poland | GMM |
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