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Examining the Equilibrium Relationship Between the Shanghai 50 Stock Index Futures and the Shanghai 50 ETF Options Markets

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  • Jinzhong Wang
  • Hao Kang
  • Fei Xia
  • Guowei Li

Abstract

Based on the put-call-futures parity model, this article studies the equilibrium relationship between the Shanghai 50 stock index futures and the Shanghai 50 Exchange-Traded Fund (ETF) options markets by analyzing the arbitrage opportunities and profits between these two derivative markets. This article reveals that the cost spread, option volatility, days from the expiration date, moneyness of options, trading strategy, and policy factors all have a great impact on the arbitrage profits and opportunities. In addition, significant arbitrage profits and opportunities indicate violations of put-call-futures parity. Although no equilibrium relationship exists between the Shanghai 50 stock index futures and the Shanghai 50 ETF options markets, efficiency in these markets has gradually improved.

Suggested Citation

  • Jinzhong Wang & Hao Kang & Fei Xia & Guowei Li, 2018. "Examining the Equilibrium Relationship Between the Shanghai 50 Stock Index Futures and the Shanghai 50 ETF Options Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(11), pages 2557-2576, September.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:11:p:2557-2576
    DOI: 10.1080/1540496X.2018.1483824
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    Cited by:

    1. 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).
    2. Marszk, Adam & Lechman, Ewa, 2021. "Reshaping financial systems: The role of ICT in the diffusion of financial innovations – Recent evidence from European countries," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    3. Yanchu Liu & Chen Liu & Yiyao Chen & Xianming Sun, 2024. "Option‐Implied Ambiguity and Equity Return Predictability," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(9), pages 1556-1577, September.
    4. Da Dong & Qingfu Liu & Pingping Tao & Zhiliang Ying, 2021. "The pricing mechanism between ETF option and spot markets in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(8), pages 1286-1300, August.

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