The Predictive Power of Implied Volatility of Options Traded OTC and on Exchanges
36 Pages Posted: 8 Dec 2008 Last revised: 29 Jul 2015
Date Written: December 5, 2008
This paper investigates the efficiency of stock index options traded over-the-counter (OTC) and on the exchanges in Hong Kong and Japan. Our findings suggest that implied volatility is superior to either historical volatility or a GARCH-type volatility forecast in predicting future volatility in both the OTC and exchange markets. We also compare the predictive power of the implied volatility of options traded OTC to that of exchange-traded options and find evidence that the OTC market is more efficient than the exchange in Japan, but that the opposite is true in Hong Kong.
Keywords: Implied Volatility, Predictive Power, Historical Volatility, Index Options, Over-the-Counter
JEL Classification: G13, G14
Suggested Citation: Suggested Citation