Empirical tests of efficiency of the Italian index options market

Cavallo, Laura; Mammola, Paolo

doi:10.1016/s0927-5398(00)00010-4

Cited by 32 publications

(72 citation statements)

References 23 publications

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“…We find several indications inconsistent with previous findings in the literature (see Cavallo and Mammola (2000)) that have led to the conclusion that the Italian MIBO30 is quite an efficient options market favoring risk-sharing activities and unbiased aggregation and dissemination of information. On the opposite, we report that a striking percentage of the data consists of option prices violating some basic no-arbitrage condition.…”

Section: Resultscontrasting

confidence: 99%

“…Each observation reports the value of the MIB30 index, the risk-free interest rate, the cross-section of MIBO30 option prices (over multiple strikes and maturities) and the bid and ask volumes. 6 The interest rate is computed as an average of the bid and ask three-month LIBOR rates. Although far being from constant over the whole period, the risk-free rate shows only two major breaks in its mean, May 5, 1999 andSeptember 29, 1999 when the mean switches respectively from about 2.95% to 2.69% and then from 2.69% to approximately 3.37%.…”

Section: The Datamentioning

confidence: 99%

“…In particular, in a recent paper Cavallo and Mammola (2000) investigate the efficiency properties of the MIBO market. Similarly to us, they use high-frequency observations.…”

Section: Introductionmentioning

confidence: 99%

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Pricing and Informational Efficiency of the MIB30 Index Options Market. An Analysis with High Frequency Data

Cassese

Guidolin

2003

SSRN Journal

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We analyze the pricing and informational efficiency of the Italian market for options written on the most important stock index, the MIB30. We report that a striking percentage of the data consists of option prices violating basic no-arbitrage conditions. This percentage declines when we relax the no-arbitrage restrictions to accommodate for the presence of bid/ask spreads and other frictions, but never becomes negligible. We also investigate the informational efficiency of the MIBO and conclude that option prices are poor predictors of the volatility of MIB30 returns. This conclusion is robust to a number of statistical and sampling methods. * We wish to thank Alberto di Stefano from BSI (Banca della Svizzera Italiana) who has made available the data used in this paper. We are also grateful to Giovanni Barone-Adesi, Laura Cavallo, Paolo Mammola, and seminar participants at Bocconi University, University of Southern Switzerland, and Tilburg University. Of course, the contents of the paper remain the sole responsibility of the authors.

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Section: Resultscontrasting

confidence: 99%

Section: The Datamentioning

confidence: 99%

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Pricing and Informational Efficiency of the MIB30 Index Options Market. An Analysis with High Frequency Data

Cassese

Guidolin

2003

SSRN Journal

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“…This result is consistent with the findings in Fung and Fung (1997) and Fung and Mok (2001). Cavallo and Mammola (2000) also provide evidence that the short arbitrage strategy is more profitable relative to the long arbitrage strategy.…”

Section: Discussionsupporting

confidence: 92%

Evidence on the arbitrage efficiency of SPI index futures and options markets

Alfay²

2007

Asia-Pacific Finan Markets

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This paper is concerned with arbitrage opportunities in the futures and futures option contracts traded on the Sydney Futures Exchange (SFE) within a put-call-futures-parity (PCFP) framework. Tick-by-tick transaction price data are employed so that the futures contracts, the call futures options and the put futures options can be matched within a one-minute interval. This paper also takes into account the realistic transaction costs that an arbitrager has to incur, including the implicit bid-ask spread. A thorough ex post analysis is first carried out. The results reveal a significant number of violations of the PCFP in the sample. Ex ante tests are then conducted whereby ex post profitable arbitrage strategies, signified by the matched trios of futures, put and call contracts, are executed with lags up to 3 min. The ex ante results are similar to the ex post results. However, further analysis reveals that the exploitability of the identified arbitrage opportunities is very limited due to the small trading volumes of the futures and options contracts. Thus, we conclude that there is no strong evidence against the arbitrage efficiency between the SPI index futures and options markets in Australia. Copyright Springer Science+Business Media, LLC 2006Put-call-futures parity, Market efficiency, SPI index, Futures, Options, G13, G14,

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“…Ackert & Tian, 2001;Evnine & Rudd, 1985;Kamara & Miller, 1995), since the mid-1990s a few contributions have investigated the validity of the PCP in some relatively new European index option markets. As far as we know, only a few recent papers 2 propose efficiency tests on European markets and specifically: Capelle-Blancard and Chaudhury (2001) for the French index (CAC40) option market, Mittnik and Rieken (2000a) for the German index (DAX) option market and Cavallo and Mammola (2000) for Italian index (Mib30) option market.…”

Section: Introductionmentioning

confidence: 99%