Early unwinding strategy in index options-futures arbitrage

Louis T.W. Cheng, Joseph K W FUNG, Castor Pang

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

We first re-examine buy-and-hold arbitrage strategies using both ex-post and ex-ante index options and futures data in Hong Kong. The results show that the arbitrage profit is not large enough to cover the transaction costs for both individual and institutional investors. Second, we find that, when an early unwinding strategy is employed, the arbitrage profit improves significantly under ex-post analysis but only improves slightly under ex-ante analysis. In addition, opportunities for same-day unwinding are limited. Finally, our regression results indicate the magnitude of the arbitrage profit is positively related to the volatility of the stock market.

Original languageEnglish
Pages (from-to)447-467
Number of pages21
JournalJournal of Financial Research
Volume21
Issue number4
DOIs
Publication statusPublished - Dec 1998

Scopus Subject Areas

  • Accounting
  • Finance

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