An empirical test of implied volatility in Singaporean structured warrants
Options traders regard implied volatility a vital variable to determine profitability in options trading and use it to estimate the underlying stock’s volatility in the future. While it cannot predict market direction, it has a reputation for forecasting—to a certain extent—potential for large swing...
| Main Authors: | , |
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| Format: | Proceeding Paper |
| Language: | English English |
| Published: |
2018
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/65796/ http://irep.iium.edu.my/65796/1/MFAC%202018%20-%20Implied%20Volatility%20Singapore%20paper.pdf http://irep.iium.edu.my/65796/23/65796_An%20Empirical%20Test%20of%20Implied.pdf |
| _version_ | 1848786450473025536 |
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| author | Samsudin, Najmi Ismail Murad Mohamad, Azhar |
| author_facet | Samsudin, Najmi Ismail Murad Mohamad, Azhar |
| author_sort | Samsudin, Najmi Ismail Murad |
| building | IIUM Repository |
| collection | Online Access |
| description | Options traders regard implied volatility a vital variable to determine profitability in options trading and use it to estimate the underlying stock’s volatility in the future. While it cannot predict market direction, it has a reputation for forecasting—to a certain extent—potential for large swings by the underlying stock. Once implied volatility is calculated, traders can estimate how high and low the stock can swing by the option’s expiration, and this probable estimation aids in making informed trading decisions. In this paper, we examine the information content of implied volatility of structured warrants in Singapore Stock Exchange (SGX). Using a daily dataset for 252 trading days for a period between August 1, 2014 and July 31, 2015, we test whether implied volatility is an unbiased estimate of realized volatility, if implied volatility contains information on future realized volatility, scrutinize the efficiency of implied volatility and its predictive power compared to historical volatility. Our findings suggest that for although implied volatility does contain some relevant information about future volatility, it is a biased forecast of realized volatility, the efficiency threshold of implied volatility is nugatory, and its predictive power is not superior to historical volatility. |
| first_indexed | 2025-11-14T17:09:14Z |
| format | Proceeding Paper |
| id | iium-65796 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English English |
| last_indexed | 2025-11-14T17:09:14Z |
| publishDate | 2018 |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | iium-657962019-11-23T15:08:20Z http://irep.iium.edu.my/65796/ An empirical test of implied volatility in Singaporean structured warrants Samsudin, Najmi Ismail Murad Mohamad, Azhar HG4501 Stocks, investment, speculation Options traders regard implied volatility a vital variable to determine profitability in options trading and use it to estimate the underlying stock’s volatility in the future. While it cannot predict market direction, it has a reputation for forecasting—to a certain extent—potential for large swings by the underlying stock. Once implied volatility is calculated, traders can estimate how high and low the stock can swing by the option’s expiration, and this probable estimation aids in making informed trading decisions. In this paper, we examine the information content of implied volatility of structured warrants in Singapore Stock Exchange (SGX). Using a daily dataset for 252 trading days for a period between August 1, 2014 and July 31, 2015, we test whether implied volatility is an unbiased estimate of realized volatility, if implied volatility contains information on future realized volatility, scrutinize the efficiency of implied volatility and its predictive power compared to historical volatility. Our findings suggest that for although implied volatility does contain some relevant information about future volatility, it is a biased forecast of realized volatility, the efficiency threshold of implied volatility is nugatory, and its predictive power is not superior to historical volatility. 2018-08-01 Proceeding Paper NonPeerReviewed application/pdf en http://irep.iium.edu.my/65796/1/MFAC%202018%20-%20Implied%20Volatility%20Singapore%20paper.pdf application/pdf en http://irep.iium.edu.my/65796/23/65796_An%20Empirical%20Test%20of%20Implied.pdf Samsudin, Najmi Ismail Murad and Mohamad, Azhar (2018) An empirical test of implied volatility in Singaporean structured warrants. In: The 20th Malaysian Finance Association Conference (MFAC) 2018, 1st-2nd August 2018, Langkawi, Kedah. (Unpublished) http://mfac2018.com/index.php |
| spellingShingle | HG4501 Stocks, investment, speculation Samsudin, Najmi Ismail Murad Mohamad, Azhar An empirical test of implied volatility in Singaporean structured warrants |
| title | An empirical test of implied volatility in Singaporean structured warrants |
| title_full | An empirical test of implied volatility in Singaporean structured warrants |
| title_fullStr | An empirical test of implied volatility in Singaporean structured warrants |
| title_full_unstemmed | An empirical test of implied volatility in Singaporean structured warrants |
| title_short | An empirical test of implied volatility in Singaporean structured warrants |
| title_sort | empirical test of implied volatility in singaporean structured warrants |
| topic | HG4501 Stocks, investment, speculation |
| url | http://irep.iium.edu.my/65796/ http://irep.iium.edu.my/65796/ http://irep.iium.edu.my/65796/1/MFAC%202018%20-%20Implied%20Volatility%20Singapore%20paper.pdf http://irep.iium.edu.my/65796/23/65796_An%20Empirical%20Test%20of%20Implied.pdf |