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Implied volatility of structured warrants: Emerging market evidence

Mohamad, Azhar and Samsudin, Najmi Ismail Murad and Sifat, Imtiaz, Mohammad (2021) Implied volatility of structured warrants: Emerging market evidence. The Quarterly Review of Economics and Finance, 80. pp. 464-479. ISSN 1062-9769

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This paper examines the informational content of Implied Volatility (IV) for 493 Malaysian and 945 Thaistructured 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 BursaMalaysia 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 findingsbear implications for the region’s derivatives market growth and risk management practices.

Item Type: Article (Journal)
Uncontrolled Keywords: Implied volatility; Structured warrants; Information content; Bursa Malaysia; Stock Exchange of Thailand; Derivatives.
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: 22 Apr 2021 15:53
Last Modified: 23 Jul 2021 14:53
URI: http://irep.iium.edu.my/id/eprint/89506

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