Liquidity and Arbitrage in Options Markets: A Survival Analysis Approach
AbstractThis paper examines the determinants of the time it takes for an index options market to return to no arbitrage values after put-call parity deviations, using intraday transactions data from the French index options market. We employ survival analysis to characterize how limits to arbitrage influence the expected duration of arbitrage deviations. After controlling for conventional limits to arbitrage, we show that liquidity-linked variables are associated with a faster reversion of arbitrage profits. The introduction of an Exchange Traded Fund also affects the survival rates of deviations, but this impact essentially stems from the reduction in the level of potential arbitrage profits. Copyright 2007, Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by European Finance Association in its journal Review of Finance.
Volume (Year): 11 (2007)
Issue (Month): 3 ()
Other versions of this item:
- Riva, Fabrice & Deville, Laurent, 2007. "Liquidity and Arbitrage in Options Markets: A Survival Analysis Approach," Economics Papers from University Paris Dauphine 123456789/1381, Paris Dauphine University.
- Laurent Deville & Fabrice Riva, 2007. "Liquidity and Arbitrage in Options Markets: A SurvivalAnalysis Approach," Post-Print halshs-00162221, HAL.
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kyle, Albert & Campbell, John, 1993.
"Smart Money, Noise Trading and Stock Price Behaviour,"
3208217, Harvard University Department of Economics.
- Campbell, John Y & Kyle, Albert S, 1993. "Smart Money, Noise Trading and Stock Price Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 1-34, January.
- John Y. Campbell & Albert S. Kyle, 1988. "Smart Money, Noise Trading and Stock Price Behavior," NBER Technical Working Papers 0071, National Bureau of Economic Research, Inc.
- Campbell, J.Y. & Kyle, A.S., 1988. "Smart Money, Noise Trading And Stock Price Behavior," Papers 95, Princeton, Department of Economics - Financial Research Center.
- Finucane, Thomas J., 1991. "Put-Call Parity and Expected Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(04), pages 445-457, December.
- De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990.
"Noise Trader Risk in Financial Markets,"
3725552, Harvard University Department of Economics.
- Tuckman, Bruce & Vila, Jean-Luc, 1992. " Arbitrage with Holding Costs: A Utility-Based Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1283-302, September.
- Ofek, Eli & Richardson, Matthew & Whitelaw, Robert F., 2004. "Limited arbitrage and short sales restrictions: evidence from the options markets," Journal of Financial Economics, Elsevier, vol. 74(2), pages 305-342, November.
- Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
- Mark Mitchell, 2001. "Characteristics of Risk and Return in Risk Arbitrage," Journal of Finance, American Finance Association, vol. 56(6), pages 2135-2175, December.
- Stoll, Hans R, 1969. "The Relationship between Put and Call Option Prices," Journal of Finance, American Finance Association, vol. 24(5), pages 801-24, December.
- Evnine, Jeremy & Rudd, Andrew, 1985. " Index Options: The Early Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 743-56, July.
- Abreu, Dilip & Brunnermeier, Markus K., 2002. "Synchronization risk and delayed arbitrage," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 341-360.
- Lucy F. Ackert & Yisong S. Tian, 1999.
"Efficiency in index options markets and trading in stock baskets,"
99-5, Federal Reserve Bank of Atlanta.
- Ackert, Lucy F. & Tian, Yisong S., 2001. "Efficiency in index options markets and trading in stock baskets," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1607-1634, September.
- Gould, J. P. & Galai, D., 1974. "Transactions costs and the relationship between put and call prices," Journal of Financial Economics, Elsevier, vol. 1(2), pages 105-129, July.
- Anna Calamia & Laurent Deville & Fabrice Riva, 2013. "Liquidity in European Equity ETFs: What Really Matters?," GREDEG Working Papers 2013-10, Groupe de REcherche en Droit, Économie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.