Efficiency in index options markets and trading in stock baskets
Researchers have reported mispricing in index options markets. This study further examines the efficiency of the S&P 500 index options market by testing theoretical pricing relationships implied by no-arbitrage conditions. The effect of a traded stock basket, Standard and Poor's Depository Receipts (SPDRs), on the link between index and options markets is also examined. Pricing efficiency within options markets improves, and the evidence supports the hypothesis that a stock basket enhances the connection between markets. However, when transactions costs and short sales constraints are included, very few violations of the pricing relationships are reported.
|Date of creation:||1999|
|Date of revision:|
|Publication status:||Published in Journal of Banking and Finance, September 2001|
|Contact details of provider:|| Postal: |
Web page: http://www.frbatlanta.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Andrei Shleifer ad Robert W. Vishny, 1995.
"The Limits of Arbitrage,"
Harvard Institute of Economic Research Working Papers
1725, Harvard - Institute of Economic Research.
- Billingsley, Randall S & Chance, Don M, 1985. "Options Market Efficiency and the Box Spread Strategy," The Financial Review, Eastern Finance Association, vol. 20(4), pages 287-301, November.
- Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
- Galai, Dan, 1977. "Tests of Market Efficiency of the Chicago Board Options Exchange," The Journal of Business, University of Chicago Press, vol. 50(2), pages 167-97, April.
- Harris, Lawrence & Sofianos, George & Shapiro, James E, 1994. "Program Trading and Intraday Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 653-85.
- 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.
- Evnine, Jeremy & Rudd, Andrew, 1985. " Index Options: The Early Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 743-56, July.
- Phillips, Susan M. & Smith, Clifford Jr., 1980. "Trading costs for listed options : The implications for market efficiency," Journal of Financial Economics, Elsevier, vol. 8(2), pages 179-201, June.
- Baesel, Jerome B & Shows, George & Thorp, Edward, 1983. " The Cost of Liquidity Services in Listed Options: A Note," Journal of Finance, American Finance Association, vol. 38(3), pages 989-95, June.
- Ronn, Aimee Gerbarg & Ronn, Ehud I, 1989. "The Box Spread Arbitrage Conditions: Theory, Tests, and Investment Strategies," Review of Financial Studies, Society for Financial Studies, vol. 2(1), pages 91-108.
When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:99-5. 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: (Meredith Rector)
If references are entirely missing, you can add them using this form.