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Pricing efficiency and arbitrage: Hong Kong derivatives markets revisited

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  • Zhihua Zhang
  • Rose Neng Lai

Abstract

This study updates the issue of arbitrage and joint market efficiency of the Hong Kong derivatives markets from three aspects: (1) put-call-futures parity is tested on a much more recent and larger data set (2002-2004); (2) the period covers several major events that exert remarkable shocks to the economy; and (3) the data set is generated from the more mature markets. Contradicting previous researches which conclude that the markets are theoretically efficient, our findings suggest that the put-call-futures parity is violated. However, ex-post and ex-ante tests indicate that although arbitrage opportunities indeed exist, profit magnitudes are not attractive. We therefore conclude that these markets are efficiently priced, albeit theoretically inefficient.

Suggested Citation

  • Zhihua Zhang & Rose Neng Lai, 2006. "Pricing efficiency and arbitrage: Hong Kong derivatives markets revisited," Applied Financial Economics, Taylor & Francis Journals, vol. 16(16), pages 1185-1198.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:16:p:1185-1198
    DOI: 10.1080/09603100500447552
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    References listed on IDEAS

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