EconPapers    
Economics at your fingertips  
 

AN OPTION THEORETIC APPROACH TO MARKET EFFICIENCY

Rajeev R. Bhattacharya ()
Additional contact information
Rajeev R. Bhattacharya: Johns Hopkins University, Washington Finance and Economics, 1717 Massachusetts Avenue, Washington, DC 20036, USA

Annals of Financial Economics (AFE), 2019, vol. 14, issue 04, 1-21

Abstract: I use five separate measures of deviation from Put-Call Parity of options on a stock without splits or dividends as separate negative measures for market efficiency. I rely upon the theory of trading volume as a function of short sales costs, etc., and that of market efficiency as a function of trading volume, etc. derived by Bhattacharya (2019). I use Three-Stage Least Squares (3SLS) to estimate this structural system, separately for Nasdaq and non-Nasdaq U.S. stocks. I find, contrary to much previous theoretical and empirical work, that the impact of short sales costs & constraints on market efficiency is not significantly negative and that the impact of trading volume on market efficiency is not significantly positive, and my results are robust to various econometric specifications and financial economic assumptions.

Keywords: Market efficiency; short sales costs; short sales constraints; options; put-call parity; implied volatility; volume; investor dispersion; transaction costs; market makers; market capitalization; analysts; Fama–French factors; institutional ownership (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010495219500180
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:afexxx:v:14:y:2019:i:04:n:s2010495219500180

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010495219500180

Access Statistics for this article

Annals of Financial Economics (AFE) is currently edited by Michael McAleer

More articles in Annals of Financial Economics (AFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().

 
Page updated 2025-03-20
Handle: RePEc:wsi:afexxx:v:14:y:2019:i:04:n:s2010495219500180