Does market efficiency matter for Shanghai 50 ETF index options?

Ariful Hoque; Thi Le; Morshadul Hasan; Mohammad Zoynul Abedin

doi:10.1016/j.ribaf.2023.102129

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Does market efficiency matter for Shanghai 50 ETF index options?

Journal article

Open access

Peer reviewed

Does market efficiency matter for Shanghai 50 ETF index options?

Ariful Hoque, Thi Le, Morshadul Hasan and Mohammad Zoynul Abedin

Research in international business and finance, Vol.67, 102129

2024

DOI: https://doi.org/10.1016/j.ribaf.2023.102129

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Abstract

Index options

Options market efficiency

Put-call parity

SSE 50 ETF market efficiency

Trading strategy

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. [Display omitted]

Details

Title: Does market efficiency matter for Shanghai 50 ETF index options?
Authors/Creators: Ariful Hoque - Murdoch Business School, Murdoch University, Australia
Thi Le - Murdoch University, College of Business
Morshadul Hasan - Murdoch University
Mohammad Zoynul Abedin - Swansea University
Publication Details: Research in international business and finance, Vol.67, 102129
Publisher: Elsevier B.V
Identifiers: 991005609670207891
Murdoch Affiliation: Murdoch Business School
Language: English
Resource Type: Journal article

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Collaboration types: Domestic collaboration; International collaboration
Citation topics: 6 Social Sciences; 6.10 Economics; 6.10.80 Market Interdependencies
Web Of Science research areas: Business, Finance
ESI research areas: Economics & Business