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Do retail options traders know better about market volatility?
Cheny Chen1; Ming-Hua Liu2; Hoa Nguyen3
2008-08-14
Source PublicationAmerican Journal of Finance and Accounting
ISSN1752-7767
Volume1Issue:1
Abstract

This paper examines the informational content and predictive power of implied volatility over different forecasting horizons in a sample of European covered warrants traded in the Hong Kong and Singapore markets. The empirical results show that time-series-based volatility forecasts outperform implied volatility forecast as predictors of future volatility. The finding also suggests that implied volatility is biased and informationally inefficient and that covered warrants are typically overvalued. The results are attributable to the fact that, in Hong Kong and Singapore, the covered warrants markets are dominated by retail investors who tend to use covered warrants' leverage to speculate on the price movements of the underlying assets rather than to express their view on volatility. Arbitrage is not possible in the markets as short-selling of covered warrants is prohibited.

KeywordCovered Warrants Implied Volatility Options Trading Market Volatility Hong Kong Singapore Retail Investors Equity Warrants
DOI10.1504/AJFA.2008.019876
Language英语
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Document TypeJournal article
CollectionFaculty of Business Administration
DEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Affiliation1.Faculty of Business, Auckland University of Technology, Private Bag 920006, Auckland 1020, New Zealand.
2.Faculty of Business Administration, University of Macau, Av. Padre Tomas Pereira, Taipa, Macau, China
3.School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, 221 Burwood Highway, Burwood VIC 3125, Australia
Recommended Citation
GB/T 7714
Cheny Chen,Ming-Hua Liu,Hoa Nguyen. Do retail options traders know better about market volatility?[J]. American Journal of Finance and Accounting,2008,1(1).
APA Cheny Chen,Ming-Hua Liu,&Hoa Nguyen.(2008).Do retail options traders know better about market volatility?.American Journal of Finance and Accounting,1(1).
MLA Cheny Chen,et al."Do retail options traders know better about market volatility?".American Journal of Finance and Accounting 1.1(2008).
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