The Determinants of the Time to Efficiency in Options Markets : A Survival Analysis Approach
Riva, Fabrice; Deville, Laurent (2004-11), The Determinants of the Time to Efficiency in Options Markets : A Survival Analysis Approach, Journées de l'AFSE 2006, 2006-05, Strasbourg, France
TypeCommunication / Conférence
Conference titleJournées de l'AFSE 2006
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Abstract (EN)This paper examines the determinants of the time it takes for an index options marketto be brought back to efficiency after put-call parity deviations, using intraday transactionsdata from the French CAC 40 index options over the August 2000 – July 2001 period. Weaddress this issue through survival analysis which allows us to characterize how differencesin market conditions influence the expected time before the market reaches the no-arbitragerelationship. We find that maturity, trading volume as well as trade imbalances in call andput options, and volatility are important in understanding why some arbitrage opportunitiesdisappear faster than others. After controlling for differences in the trading environnement,we find a strong and negative relationship between the existence of ETFs on the index andthe time to efficiency.
Subjects / KeywordsSurvival Analysis; Market efficiency; Index Options; Exchange TradedFunds.
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