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Implied volatility and contagion in the options market

Prima Sakti, Muhammad Rizky and Mohamad, Azhar (2014) Implied volatility and contagion in the options market. In: International Business Economics Social Sciences Research Association (IBESRA) Istanbul Conference, Turkey, 29-30 December 2014, Istanbul, Turkey. (Unpublished)

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Among options traders, implied volatility is regarded as one of the most important variables for determining profitability in options trading. Implied volatility implies the future underlying stock volatility, and whilst it cannot predict market direction, it can forecast the stock’s potential for large fluctuations in the future. Once the implied volatility has been calculated, the traders can estimate how high or low the stock might swing by the option’s expiration and this estimation helps traders to make informed trading decisions. In this paper, we examine the information content of the implied volatility of call options in the Malaysian stock market. We use a daily dataset for 100 trading days for a period between November 2013 and February 2014. Our findings suggest that, for the Malaysian market, although implied volatility does contain some relevant information about future volatility, it is a less accurate predictor than historical volatility.

Item Type: Conference or Workshop Item (UNSPECIFIED)
Additional Information: 6777/41306
Uncontrolled Keywords: options market, volatility
Subjects: H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User: Dr Azhar Mohamad
Date Deposited: 12 Feb 2015 15:28
Last Modified: 23 Jul 2021 15:22
URI: http://irep.iium.edu.my/id/eprint/41306

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