Abstract
Using a box spread arbitrage strategy, we examine the pricing efficiency of the emerging, thinly traded Hang Seng Index options market in Hong Kong, where market makers operate under a competitive open outcry system. In 20 months of tick-by-tick bid-ask and transaction quotes we find very few arbitrage opportunities. Our examination of the reporting time of quotes shows that in effect, all the apparent mispricings are deceptive and could be explained by stale quotes. The absence of real arbitrage opportunities supports the pricing rationality hypothesis in the Hong Kong options market.
Original language | English |
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Pages (from-to) | 435-454 |
Number of pages | 20 |
Journal | Financial Review |
Volume | 39 |
Issue number | 3 |
DOIs | |
Publication status | Published - Aug 2004 |
Scopus Subject Areas
- Finance
- Economics and Econometrics
User-Defined Keywords
- Bid-ask quotes
- Box spread
- Limits to arbitrage
- Market makers
- Price rationality
- Thin market