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Does market efficiency matter for Shanghai 50 ETF index options?

Ariful Hoque, Thi Le, Morshadul Hasan, Abedin Abedin

Research in International Business and Finance, Volume: 67, Start page: 102129

Swansea University Author: Abedin Abedin

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DOI (Published version): 10.1016/j.ribaf.2023.102129

Abstract

This study aims to measure Shanghai 50 Exchange-Traded Fund (SSE 50 ETF) index options efficiency for trading in different periods of a trading day. We use an econometric model of put-call-parity to test the market efficiency for three moneyness situations: call at-the-money and put at-the-money, ca...

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Published in: Research in International Business and Finance
ISSN: 0275-5319 1878-3384
Published: Elsevier BV 2024
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URI: https://cronfa.swan.ac.uk/Record/cronfa64761
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Abstract: This study aims to measure Shanghai 50 Exchange-Traded Fund (SSE 50 ETF) index options efficiency for trading in different periods of a trading day. We use an econometric model of put-call-parity to test the market efficiency for three moneyness situations: call at-the-money and put at-the-money, call in-the-money and put out-of-the-money, call out-of-the-money, and put in-the-money. The SSE 50 ETF index options market is efficient when both call and put options are at-the-money, leading to accurately-priced call and put options. The SSE 50 ETF index options market is inefficient if the call is in-the-money (out-of-the-money) and the put is out-of-the-money (in-the-money). Furthermore, call and put options are over-priced (under-priced) and underpriced (over-priced), respectively, when the SSE 50 ETF index options market is inefficient. Traders can take a long or short position based on call-put option pricing to reduce hedging costs and increase speculative premiums.
Keywords: Options market efficiency, Trading strategy, SSE 50 ETF market efficiency, Put-call parity, Index options
College: Faculty of Humanities and Social Sciences
Funders: Swansea University
Start Page: 102129

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