Testing the Informational Efficiency of OTC Optionson Emerging Market Currencies
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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. 2003/001
Subject:
Asset prices Currencies Currency markets Exchange rates Financial institutions Financial markets Foreign exchange Money Options Prices
English
Publication Date:
January 1, 2003
ISBN/ISSN:
9781451841657/1018-5941
Stock No:
WPIEA0012003
Pages:
32
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