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Cross‐market efficiency in the Indian derivatives market: A test of put–call parity

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  • Vipul

Abstract

This study examines the cross‐market efficiency of the Indian options and futures market using model‐free tests. The put–call–futures and put–call–index parity conditions are tested for European style Nifty Index options. Thirty‐five‐month time‐stamped transactions data are used to identify mispricing. Frequent violations of both forms of put–call parity are observed. The restriction on short sales largely accounts for the put–call–index parity violations. There are numerous put–call–futures arbitrage profit opportunities even after accounting for transaction costs, which vanish quickly. Put options are overpriced more often than call options. The mispricing shows specific patterns with respect to time of the day, moneyness, volatility, and days to expiry. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:889–910, 2008

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  • Vipul, 2008. "Cross‐market efficiency in the Indian derivatives market: A test of put–call parity," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(9), pages 889-910, September.
    • Handle: RePEc:wly:jfutmk:v:28:y:2008:i:9:p:889-910
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    Cited by:

    1. Alok Dixit & Vipul & Shivam Singh, 2019. "Options pricing and short‐selling in the underlying: Evidence from India," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(10), pages 1250-1268, October.
    2. Atilgan, Yigit & Demirtas, K. Ozgur & Simsek, Koray D., 2016. "Derivative markets in emerging economies: A survey," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 88-102.
    3. Debaditya Mohanti & P. K. Priyan, 2014. "An Empirical Test of Market Efficiency of Indian Index Options Market Using the Black–Scholes Model and Dynamic Hedging Strategy," Paradigm, , vol. 18(2), pages 221-237, December.
    4. Alok Dixit & Shivam Singh, 2018. "Ad-Hoc Black–Scholes vis-à-vis TSRV-based Black–Scholes: Evidence from Indian Options Market," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(1), pages 57-88, March.
    5. Ebenezer Asem & Vishaal Baulkaran & Rossitsa Yalamova & Xiaofei Zhang, 2017. "Internal Market Efficiency, Market Co-movement, and Cross-Market Efficiency: The Case of Hong Kong and Shanghai Stock Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 24(4), pages 253-267, December.

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