The Arbitrage Efficiency of the Nikkei 225 Options Market: A Put-Call Parity Analysis
This paper is concerned with arbitrage efficiency of the Nikkei index option contracts traded on the Osaka Securities Exchange ( OSE) within the put-call parity (PCP) framework. A thorough ex post analysis is first carried out. The results reveal a modest number of violations with 2.74 percent of the sample breaching the PCP equation and an average arbitrage profit of 22.61 index points for OSE member firms during the sample period (2003?05). Ex ante tests are then conducted whereby ex post profitable arbitrage strategies, signified by the matched put and call contracts, are executed with lags of one minute and three minutes. The ex ante results reveal that the number of profitable arbitrage opportunities and the average profit are both reduced significantly with an execution lag. In addition, regression analysis is used to provide further evidence about the PCP and arbitrage profitability. Overall, there is no strong evidence found against the efficiency of the Nikkei 225 options market, although arbitrage opportunities do exist occasionally.
Volume (Year): 24 (2006)
Issue (Month): 2 (November)
|Contact details of provider:|| Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103|
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
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.:
- Evnine, Jeremy & Rudd, Andrew, 1985. " Index Options: The Early Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 743-56, July.
When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:24:y:2006:i:2:p:33-54. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kinken)
If references are entirely missing, you can add them using this form.