Efficiency of the Indian Derivatives Market – An Empirical Study

Dr. A Sudhakar and D G Praveen

The IUP Journal of Financial Economics, 2004, vol. II, issue 2, 41-53

Abstract: The paper attempts to examine the level of efficiency of the Indian Derivatives Market, focusing on the prevalence of arbitrage opportunities. The existence of arbitrage opportunities signifies the level of market inefficiency. Using the put-call parity (implied volatility) theory, the authors arrive at a conclusion that Indian derivatives markets provide immense arbitrage opportunities through strategies like cash-and-carry arbitrage, reverse cash-and-carry arbitrage, and synthetic futures. However, there are some constraints to easy arbitrage in the Indian market such as short selling regulations, tax system, absence of hedge funds, unfamiliarity with derivatives, reluctance of banks to lend funds for arbitrage purposes etc.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjfe:v:02:y:2004:i:2:p:41-53

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