The Determinants of the Time to Efficiency in Options
Markets: A Survival Analysis Approach
Résumé
This paper examines the determinants of the time it takes for an index options market
to be brought back to efficiency after put-call parity deviations, using intraday transactions
data from the French CAC 40 index options over the August 2000 – July 2001 period. We
address this issue through survival analysis which allows us to characterize how differences
in market conditions influence the expected time before the market reaches the no-arbitrage
relationship. We find that maturity, trading volume as well as trade imbalances in call and
put options, and volatility are important in understanding why some arbitrage opportunities
disappear 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 and
the time to efficiency.
to be brought back to efficiency after put-call parity deviations, using intraday transactions
data from the French CAC 40 index options over the August 2000 – July 2001 period. We
address this issue through survival analysis which allows us to characterize how differences
in market conditions influence the expected time before the market reaches the no-arbitrage
relationship. We find that maturity, trading volume as well as trade imbalances in call and
put options, and volatility are important in understanding why some arbitrage opportunities
disappear 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 and
the time to efficiency.
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