Abstract
Nowadays, index options’ markets have become very important for both financial and economic spheres thanks to the roles that they ensure. The purpose of this paper is to investigate the efficiency of the CAC40 index options’ market using no-arbitrage principle tests. Three relations are tested: call/put spread, box spread, and convexity spread. Ex post, as well as ex ante tests, reveal the importance of transactions costs. The efficiency becomes better as the estimation of transaction costs increase and especially as the bid/ask spread is taken into account. Thus, the market can be considered as efficient according to the Jensen’s (1978) definition of efficiency. The results also suggest that the CAC40 options’ market is highly efficient according to the weak form of efficiency and for market participants who support the lower costs (third case) as the options market valuations are generally consistent with the theoretical predictions. However, the percentage of ex ante persisting deviations is high which means that the market quotes need more time to adjust to their theoretical value.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
