Stock index futures arbitrage in emerging markets: Polish evidence

Białkowski, Jędrzej; Jakubowski, Jacek

doi:10.1016/j.irfa.2006.10.004

Cited by 21 publications

(12 citation statements)

References 30 publications

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“…Diamond and Verrecchia (1987) suggest that, since short sellers do not have the use of sale proceeds, market participant's never short for liquidity reasons, which ceteris paribus implies relatively few uninformed short sellers. Empirical studies confirm heavily shorted stocks under-perform, implying short sellers are informed (see inter alia Asquith, Pathak & Ritter, 2005;Białkowski & Jakubowski, 2008;Boehmer, Danielsen, & Sorescu, 2006;Boehmer, Jones, & Zhang, 2008;Desai, Ramesh, Thiagarajan, & Balachandran, 2002;Diether, Lee and Werner, 2009a;Lamont, 2002 andTakahashi, 2010).…”

Section: Literature Reviewmentioning

confidence: 99%

Short-sales constraints and market quality: Evidence from the 2008 short-sales bans

Frino

Lecce

Lepone

2011

International Review of Financial Analysis

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Section: Literature Reviewmentioning

confidence: 99%

Short-sales constraints and market quality: Evidence from the 2008 short-sales bans

Frino

Lecce

Lepone

2011

International Review of Financial Analysis

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“…At the same time, the study suggests that the level of mispricing may not be attributed to volatility, but rather to the time to maturity. At an earlier stage of operation of the Polish stock exchange, it was determined that it displays the characteristics of a mature market in terms of ex post and ex ante violations for short arbitrage, but not in terms of long arbitrage (Białkowski and Jakubowski, 2008). Upon the introduction of changes allowing institutional investors to participate in the futures market, arbitrage opportunities were further reduced (Bohl et al, 2011).…”

Section: Discussionmentioning

confidence: 99%

“…In this study, the M t series is analysed with respect to four variants of transaction costs: 0%, 0.3%, 0.6% and 0.9%. The thresholds are adopted in line with Białkowski and Jakubowski (2008). They estimated the level of costs applicable on the WSE, and found that costs of 0.3% are borne by privileged investors (stock exchange members), costs of 0.6% by large institutions, and costs of 0.9% by small investors.…”

Section: Methodsmentioning

confidence: 99%

Short Sale and Index Futures Mispricing: Evidence from the Warsaw Stock Exchange

Marcinkiewicz¹

2016

Prague Economic Papers

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The study attempts to assess the effects of lifting short sale restrictions on the Warsaw Stock Exchange in terms of futures pricing efficiency. The approach implemented in the article involves evaluation and comparison of the mispricing series of the WIG20 index futures listed on the WSE, in a one-year time span before and after the regulatory change introduced in 2010. The results show that lifting short sale constraints has increased the efficiency of the Polish futures market. There was a decline both in the number of mispricing occurrences, and in the mean level and dispersion of deviations from the fair values, especially with regard to underpriced contracts series. The study reveals that, in contrast to the pre-event period, after the regulatory change the arbitrage opportunities were virtually absent for investors bearing the highest transaction costs.

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“…Therefore, the under-pricing of the futures can be attributed to the fact that short-selling has been banned during the period under reference in the Indian securities market. The impact of short-selling constraints on the pricing of futures contracts has been validated empirically by numerous studies, carried out in different markets across the globe, for example, MacKinlay and Ramaswamy (1988), in the context of the US market; Puttonen and Martikainen (1991), in the context of the Finnish market; Lim (1992), in the context of the Japanese market; Puttonen (1993b), in the context of the Finnish market; Berglund and Kabir (2003), in the context of the UK market; Bialkowski and Jakubowski (2008), in the context of the Polish market. These studies have attributed the absence of short-selling facility in the market as a potential reason for the underpricing of futures contracts.…”

Section: Comparison Of Call and Put Optionsmentioning

confidence: 99%

Testing Lower Boundary Conditions for Index Options Using Futures Prices: Evidences from the Indian Options Market

Dixit¹,

Yadav²,

Jain³

2011

Vikalpa: The Journal for Decision Makers

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Options are the contracts which serve as a tool for risk hedging, price discovery, and better allocation of capital. The efficiency of an options market, i.e., the correctness of option prices denotes that it is working well at its well-identified functions (Ackert and Tian, 2000). In view of this, the efficiency of options market has been of equal interest to the academics as well as practitioners and a number of studies on efficiency of options market have been carried out across the globe in different options markets.The present paper attempts to assess the pricing efficiency of the S&P CNX Nifty index options in India by testing the Lower Boundary Conditions (LBCs) using futures prices instead of spot values. The methodology adopted essentially tests a joint market efficiency hypothesis of index options and index futures. This has been done in view of the fact that the use of futures markets helps in doing away with the short-selling constraint as futures can easily be shorted. And, it becomes a natural choice for analysis as the short-selling has been banned in the Indian securities market during the period under reference. Moreover, the use of futures markets, to a marked extent, helps in ensuring the exploitability of arbitrage opportunities when underlying asset is an index.The study covers a period of six years from June 4, 2001 (starting date for index options in India) to June 30, 2007. The major findings of the study are:• The put options market is more efficient than the call options market, given the existing market microstructure in India during the period under reference.• Another equally important finding is that the put options market showed an improvement in the pricing efficiency over the years whereas the call options market demonstrated a counterintuitive and adverse development. • However, the profit potential offered by highly traded opportunities both in the cases of call and put options seems to be unexploitable in the presence of transaction costs.• Moreover, the dearth of liquidity in the case of otherwise exploitable opportunities which carry higher profit potentials has been the main inhibiting factor to arbitrageurs.Therefore, in short, it is reasonable to conclude that majority of violations in call as well as put options could not be exploited on account of the existing market-microstructure in India during the period under reference (especially short-selling constraint that caused underpricing in futures to persist) and the dearth of liquidity in the options market. In other words, the revealed state of options pricing can be designated to the short-selling constraints and dearth of liquidity.

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Stock index futures arbitrage in emerging markets: Polish evidence

Cited by 21 publications

References 30 publications

Short-sales constraints and market quality: Evidence from the 2008 short-sales bans

Short-sales constraints and market quality: Evidence from the 2008 short-sales bans

Short Sale and Index Futures Mispricing: Evidence from the Warsaw Stock Exchange

Testing Lower Boundary Conditions for Index Options Using Futures Prices: Evidences from the Indian Options Market

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