TY - JOUR
T1 - Implied volatility of structured warrants
T2 - Emerging market evidence
AU - Murad Samsudin, Najmi Ismail
AU - Mohamad, Azhar
AU - Sifat, Imtiaz Mohammad
N1 - Publisher Copyright:
© 2021 Board of Trustees of the University of Illinois
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021/5
Y1 - 2021/5
N2 - This paper examines the informational content of Implied Volatility (IV) for 493 Malaysian and 945 Thai structured call warrants from 2014 to 2015. Unlike a regular warrant (issued by the firm) and attached to bonds, loan stocks, or preferred stocks as sweeteners, a structured warrant is issued by a third party. Structured warrant is a prevalent exchange-traded instrument in South-East Asian countries. This study is among the first to examine the IV of structured warrants using emerging market datasets from Bursa Malaysia and the Stock Exchange of Thailand. Our predictive regression models compare IV's effectiveness in anticipating future realized volatility vis-à-vis historical volatility. We record that IV in both exchanges contains relevant information about future realized volatility only on a handful of occasions. Additionally, structured warrants' IV is a mostly biased predictor with a diminutive efficiency threshold. Our findings bear implications for the region's derivatives market growth and risk management practices.
AB - This paper examines the informational content of Implied Volatility (IV) for 493 Malaysian and 945 Thai structured call warrants from 2014 to 2015. Unlike a regular warrant (issued by the firm) and attached to bonds, loan stocks, or preferred stocks as sweeteners, a structured warrant is issued by a third party. Structured warrant is a prevalent exchange-traded instrument in South-East Asian countries. This study is among the first to examine the IV of structured warrants using emerging market datasets from Bursa Malaysia and the Stock Exchange of Thailand. Our predictive regression models compare IV's effectiveness in anticipating future realized volatility vis-à-vis historical volatility. We record that IV in both exchanges contains relevant information about future realized volatility only on a handful of occasions. Additionally, structured warrants' IV is a mostly biased predictor with a diminutive efficiency threshold. Our findings bear implications for the region's derivatives market growth and risk management practices.
KW - Bursa Malaysia
KW - Derivatives
KW - Implied volatility
KW - Information content
KW - Stock exchange of Thailand
KW - Structured warrants
UR - http://www.scopus.com/inward/record.url?scp=85103737858&partnerID=8YFLogxK
U2 - 10.1016/j.qref.2021.03.016
DO - 10.1016/j.qref.2021.03.016
M3 - Article
AN - SCOPUS:85103737858
SN - 1062-9769
VL - 80
SP - 464
EP - 479
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
ER -