Pricing dynamics of index options and index futures in Hong Kong before and during the Asian financial crisis

Louis T.W. Cheng*, Joseph K W FUNG, Kam C. Chan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

20 Citations (Scopus)

Abstract

This article studies the impact of the Asian financial crisis on index options and index futures markets in Hong Kong. We employed a time-stamped transaction data set of the Hang Seng Index options and futures contracts that were traded on the Hong Kong Futures Exchange. The results show that during the crisis period, the arbitrage profits, and the standard deviations of these profits increased in both ex-post and ex-ante analyses. In a market turbulent time, market volatility brings a higher arbitrage profit level. However, despite the increased market volatility, the profitability of the arbitrage trades declined substantially with longer execution time lags in the ex-ante analysis. This suggests that the HSI futures and options markets are mature and resilient. A multiple regression analysis on the ex-post arbitrage profit also suggests that there were structural changes during the Asian financial crisis and the Hong Kong government intervention periods.

Original languageEnglish
Pages (from-to)145-166
Number of pages22
JournalJournal of Futures Markets
Volume20
Issue number2
DOIs
Publication statusPublished - 1 Feb 2000

Scopus Subject Areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics

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