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


  • Steven Li


  • Elia Alfay



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

Suggested Citation

  • Steven Li & Elia Alfay, 2006. "Evidence on the arbitrage efficiency of SPI index futures and options markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 13(1), pages 71-93, March.
  • Handle: RePEc:kap:apfinm:v:13:y:2006:i:1:p:71-93 DOI: 10.1007/s10690-007-9035-z

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    References listed on IDEAS

    1. Michael J. Aitken & Alex Frino & Amelia M. Hill & Elvis Jarnecic, 2004. "The impact of electronic trading on bidā€ask spreads: Evidence from futures markets in Hong Kong, London, and Sydney," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(7), pages 675-696, July.
    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.
    3. 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.
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    More about this item


    Put-call-futures parity; Market efficiency; SPI index; Futures; Options; G13; G14;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


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