Testing the Informational Efficiency of OTC Optionson Emerging Market Currencies

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 m...

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Main Author: Chan-Lau, Jorge A.
Other Authors: Mendez Morales, Armando
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2003, 2003
Series:IMF Working Papers; Working Paper
Subjects:
Gmm
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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
Physical Description:32 p.
ISBN:1451841655
9781451841657