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Does market efficiency matter for Shanghai 50 ETF index options?

Author

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  • Hoque, Ariful
  • Le, Thi
  • Hasan, Morshadul
  • Abedin, Mohammad Zoynul

Abstract

This study aims to measure Shanghai 50 Exchange-Traded Fund (SSE 50 ETF) index options efficiency for trading in different periods of a trading day. We use an econometric model of put-call-parity to test the market efficiency for three moneyness situations: call at-the-money and put at-the-money, call in-the-money and put out-of-the-money, call out-of-the-money, and put in-the-money. The SSE 50 ETF index options market is efficient when both call and put options are at-the-money, leading to accurately-priced call and put options. The SSE 50 ETF index options market is inefficient if the call is in-the-money (out-of-the-money) and the put is out-of-the-money (in-the-money). Furthermore, call and put options are over-priced (under-priced) and underpriced (over-priced), respectively, when the SSE 50 ETF index options market is inefficient. Traders can take a long or short position based on call-put option pricing to reduce hedging costs and increase speculative premiums.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pb:s0275531923002556
    DOI: 10.1016/j.ribaf.2023.102129
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    More about this item

    Keywords

    Options market efficiency; Trading strategy; SSE 50 ETF market efficiency; Put-call parity; Index options;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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