Efficiency of the foreign currency options market

Hoque, Ariful and Chan, Felix and Manzur, Meher (2008) Efficiency of the foreign currency options market. Global Finance Journal, 19 (2). pp. 157-170. ISSN 1044-2083

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Abstract

[Abstract]: This paper provides a new test of the efficiency of the currency option markets for four major currencies — British Pound, Euro, Swiss Frank and Japanese Yen vis-à-vis the U.S. dollar. The approach is to simulate trading strategies to see if the well-accepted no-arbitrage condition of put–call parity (PCP) holds in a trading environment. Augmented Dickey–Fuller and Philips–Perron tests are used to check for the presence of unit roots in the data, followed by a formal econometric analysis. The results indicate that the most currency option prices do not violate the PCP conditions, when transaction costs are allowed for.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Author's version deposited in accordance with the copyright policy of the publisher.
Depositing User: Dr Ariful Hoque
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 06 Nov 2009 00:28
Last Modified: 16 Oct 2014 01:04
Uncontrolled Keywords: foreign currency options; lower boundary conditions; put–call parity; conditional variance; transaction costs
Fields of Research (FOR2008): 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
URI: http://eprints.usq.edu.au/id/eprint/6044

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