IDEAS home Printed from https://ideas.repec.org/a/kap/apfinm/v13y2006i1p71-93.html
   My bibliography  Save this article

Evidence on the arbitrage efficiency of SPI index futures and options markets

Author

Listed:
  • Steven Li
  • Elia Alfay

Abstract

This paper is concerned with arbitrage opportunities in the futures and futures option contracts traded on the Sydney Futures Exchange (SFE) within a put-call-futures-parity (PCFP) framework. Tick-by-tick transaction price data are employed so that the futures contracts, the call futures options and the put futures options can be matched within a one-minute interval. This paper also takes into account the realistic transaction costs that an arbitrager has to incur, including the implicit bid-ask spread. A thorough ex post analysis is first carried out. The results reveal a significant number of violations of the PCFP in the sample. Ex ante tests are then conducted whereby ex post profitable arbitrage strategies, signified by the matched trios of futures, put and call contracts, are executed with lags up to 3 min. The ex ante results are similar to the ex post results. However, further analysis reveals that the exploitability of the identified arbitrage opportunities is very limited due to the small trading volumes of the futures and options contracts. Thus, we conclude that there is no strong evidence against the arbitrage efficiency between the SPI index futures and options markets in Australia. Copyright Springer Science+Business Media, LLC 2006

Suggested Citation

  • Steven Li & Elia Alfay, 2006. "Evidence on the arbitrage efficiency of SPI index futures and options markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 13(1), pages 71-93, March.
    • Handle: RePEc:kap:apfinm:v:13:y:2006:i:1:p:71-93
    DOI: 10.1007/s10690-007-9035-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10690-007-9035-z
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10690-007-9035-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fung, Joseph K W & Mok, Henry M K, 2001. "Index Options-Futures Arbitrage: A Comparative Study with Bid/Ask and Transaction Data," The Financial Review, Eastern Finance Association, vol. 36(1), pages 71-94, February.
    2. Michael J. Aitken & Alex Frino & Amelia M. Hill & Elvis Jarnecic, 2004. "The impact of electronic trading on bid‐ask spreads: Evidence from futures markets in Hong Kong, London, and Sydney," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(7), pages 675-696, July.
    3. Christine A. Brown, 1999. "The Volatility Structure Implied by Options on the SPI Futures Contract," Australian Journal of Management, Australian School of Business, vol. 24(2), pages 115-130, December.
    4. Kamara, Avraham & Miller, Thomas W., 1995. "Daily and Intradaily Tests of European Put-Call Parity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(4), pages 519-539, December.
    5. Brown, C. A. & Taylor, S. D., 1997. "A test of the Asay model for pricing options on the SPI futures contract," Pacific-Basin Finance Journal, Elsevier, vol. 5(5), pages 579-594, December.
    6. Klemkosky, Robert C. & Resnick, Bruce G., 1980. "An ex ante analysis of put-call parity," Journal of Financial Economics, Elsevier, vol. 8(4), pages 363-378, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steven Li & Elia Alfay, 2005. "Evidence on the arbitrage efficiency of SPI index futures and options markets," School of Economics and Finance Discussion Papers and Working Papers Series 194, School of Economics and Finance, Queensland University of Technology.
    2. Hoque, Ariful & Le, Thi & Hasan, Morshadul & Abedin, Mohammad Zoynul, 2024. "Does market efficiency matter for Shanghai 50 ETF index options?," Research in International Business and Finance, Elsevier, vol. 67(PB).
    3. Chin‐Ho Chen & Junmao Chiu & Huimin Chung, 2020. "Arbitrage opportunities, liquidity provision, and trader types in an index option market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(3), pages 279-307, March.
    4. Jianfeng Hu, 2020. "Is the synthetic stock price really lower than actual price?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(12), pages 1809-1824, December.
    5. Robert E.J. Hibbard & Rob Brown & Keith R. McLaren, 2002. "Nonsimultaneity and Futures Option Pricing: Simulation and Empirical Evidence," Monash Econometrics and Business Statistics Working Papers 13/02, Monash University, Department of Econometrics and Business Statistics.
    6. Robert A. Jarrow, 2015. "Asset Price Bubbles," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 201-218, December.
    7. Debaditya Mohanti & P. K. Priyan, 2014. "An Empirical Test of Market Efficiency of Indian Index Options Market Using the Black–Scholes Model and Dynamic Hedging Strategy," Paradigm, , vol. 18(2), pages 221-237, December.
    8. Liu, Dehong & Qiu, Qi & Hughen, J. Christopher & Lung, Peter, 2019. "Price discovery in the price disagreement between equity and option markets: Evidence from SSE ETF50 options of China," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 557-571.
    9. Ben David Nissim & Tavor Tchahi, 2011. "An empirical test of 'put call parity'," Applied Financial Economics, Taylor & Francis Journals, vol. 21(22), pages 1661-1664.
    10. Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M., 2015. "Put–Call Parity and market frictions," Journal of Economic Theory, Elsevier, vol. 157(C), pages 730-762.
    11. Michael J. Dueker & Thomas W. Miller, 1996. "Market microstructure effects on the direct measurement of the early exercise premium in exchange-listed options," Working Papers 1996-013, Federal Reserve Bank of St. Louis.
    12. Engstrom, Malin & Norden, Lars, 2000. "The early exercise premium in American put option prices," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 461-479, December.
    13. Bogousslavsky, Vincent & Muravyev, Dmitriy, 2023. "Who trades at the close? Implications for price discovery and liquidity," Journal of Financial Markets, Elsevier, vol. 66(C).
    14. Martin Wallmeier, 2024. "Quality issues of implied volatilities of index and stock options in the OptionMetrics IvyDB database," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(5), pages 854-875, May.
    15. François-Heude, Alain & Yousfi, Ouidad, 2013. "On the liquidity of CAC 40 index options Market," MPRA Paper 47921, University Library of Munich, Germany, revised 01 Jul 2013.
    16. Christine A. Brown, 1999. "The Volatility Structure Implied by Options on the SPI Futures Contract," Australian Journal of Management, Australian School of Business, vol. 24(2), pages 115-130, December.
    17. Alessandro Fiori Maccioni, 2011. "Endogenous Bubbles in Derivatives Markets: The Risk Neutral Valuation Paradox," Papers 1106.5274, arXiv.org, revised Sep 2011.
    18. Fung, Joseph K. W. & Mok, Henry M. K., 2003. "Early unwinding of options-futures arbitrage with bid/ask quotations and transaction prices," Global Finance Journal, Elsevier, vol. 14(2), pages 121-133, July.
    19. Felföldi-Szűcs, Nóra & Králik, Balázs & Váradi, Kata, 2024. "Put–call parity in a crypto option market — Evidence from Binance," Finance Research Letters, Elsevier, vol. 61(C).
    20. Lucy F. Ackert & Yisong S. Tian, 2000. "Evidence on the efficiency of index options markets," Economic Review, Federal Reserve Bank of Atlanta, vol. 85(Q1), pages 40-51.

    More about this item

    Keywords

    Put-call-futures parity; Market efficiency; SPI index; Futures; Options; G13; G14;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:apfinm:v:13:y:2006:i:1:p:71-93. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.