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Testing of Warrants Market Efficiency on the Warsaw Stock Exchange — Classical Approach

  • Agnieszka Majewska
  • Sebastian Majewski
Part of the Studies in Classification, Data Analysis, and Knowledge Organization book series (STUDIES CLASS)

Abstract

The efficiency of different markets was a subject of research by plenty of analysts. Most market research on the derivatives market was concentrated on valuation, but only a little part was concentrated on market efficiency. The goal of this article is to provide an empirical test of efficiency of the warrants quoted on the Warsaw Stock Exchange. One of the approaches of the derivatives’ market efficiency testing is researching a relationship between implied and historical volatility. The efficient market hypothesis assumes that volatility prediction, which is build on the sign from market, its named implied volatility, could be estimator of empirical volatility in the future, named historical volatility. Using standard procedures for estimating regression line by the OLS and for verification of econometric models, researchers could conclude about rejection or the lack of bases’ disallowable the hypotheses’ about market efficiency. The research includes testing weak and strong efficiency. There are two ways of testing the warrants market efficiency in the paper. The first approach includes empirical tests based on the following stages: 1. The calculation of underlying assets’ historical volatility. 2. The estimation of implied volatility from warrants prices. 3. Verification of hypothesis. The second approach consists in comparing the actual warrants prices and the estimated prices generated from the Black-Scholes pricing model.

Keywords

Stochastic Volatility None None Implied Volatility Market Efficiency Exponential Weight Move Average 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin · Heidelberg 2005

Authors and Affiliations

  • Agnieszka Majewska
    • 1
  • Sebastian Majewski
    • 1
  1. 1.Department of Insurance and Capital MarketsUniversity of SzczecinSzczecinPoland

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