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Evidence on the arbitrage efficiency of SPI index futures and options markets

  • Steven Li

    ()

  • Elia Alfay

    ()

Registered author(s):

    This paper is concerned with arbitrage opportunities in the futures and futures option contracts traded on the Sydney Futures Exchange (SFE) within a put-call-futures-parity (PCFP) framework. Tick-by-tick transaction price data are employed so that the futures contracts, the call futures options and the put futures options can be matched within a one-minute interval. This paper also takes into account the realistic transaction costs that an arbitrager has to incur, including the implicit bid-ask spread. A thorough ex post analysis is first carried out. The results reveal a significant number of violations of the PCFP in the sample. Ex ante tests are then conducted whereby ex post profitable arbitrage strategies, signified by the matched trios of futures, put and call contracts, are executed with lags up to 3 min. The ex ante results are similar to the ex post results. However, further analysis reveals that the exploitability of the identified arbitrage opportunities is very limited due to the small trading volumes of the futures and options contracts. Thus, we conclude that there is no strong evidence against the arbitrage efficiency between the SPI index futures and options markets in Australia. Copyright Springer Science+Business Media, LLC 2006

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    File URL: http://hdl.handle.net/10.1007/s10690-007-9035-z
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    Article provided by Springer in its journal Asia-Pacific Financial Markets.

    Volume (Year): 13 (2006)
    Issue (Month): 1 (March)
    Pages: 71-93

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    Handle: RePEc:kap:apfinm:v:13:y:2006:i:1:p:71-93
    Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=102851

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    1. Klemkosky, Robert C. & Resnick, Bruce G., 1980. "An ex ante analysis of put-call parity," Journal of Financial Economics, Elsevier, vol. 8(4), pages 363-378, December.
    2. Kamara, Avraham & Miller, Thomas W., 1995. "Daily and Intradaily Tests of European Put-Call Parity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 519-539, December.
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