The predictive power of the implied volatility of options traded OTC and on exchanges |
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Authors: | Wayne W Yu Evans CK Lui Jacqueline W Wang |
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Institution: | 1. School of Accounting and Finance, The Hong Kong Polytechnic University, Hong Kong;2. Department of Finance, The Chinese University of Hong Kong, Hong Kong |
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Abstract: | This paper investigates the efficiency of stock index options traded over-the-counter (OTC) and on the exchanges in Hong Kong and Japan. Our findings suggest that implied volatility is superior to either historical volatility or a GARCH-type volatility forecast in predicting future volatility in both the OTC and exchange markets. This paper is also one of the first to compare the predictive power of the implied volatility of stock index options traded OTC to that of exchange-traded stock index options. Our evidence suggests that the OTC market is more efficient than the exchanges in Japan, but that the opposite is true in Hong Kong. |
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Keywords: | G13 G14 |
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