Do retail option traders know better about market volatility?

Chen, Cheny, Liu, Ming-Hua and Nguyen, Hoa 2008, Do retail option traders know better about market volatility?, American journal of finance and accounting, vol. 1, no. 1, pp. 1-19.

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Title Do retail option traders know better about market volatility?
Author(s) Chen, Cheny
Liu, Ming-Hua
Nguyen, Hoa
Journal name American journal of finance and accounting
Volume number 1
Issue number 1
Start page 1
End page 19
Publisher Inderscience
Place of publication Olney, England
Publication date 2008-01
ISSN 1752-7767
Keyword(s) covered warrants
equity warrants
implied volatility
options trading
market volatility
Hong Kong
Singapore
retail investors
Summary 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.
Language eng
Field of Research 150201 Finance
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2008, Inderscience
Persistent URL http://hdl.handle.net/10536/DRO/DU:30017789

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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