A Study of Mispricing and Parity in the Hang Seng Futures and Options Markets

Kelvin Wai Lung Lai and Andrew Marshall ()
Additional contact information
Kelvin Wai Lung Lai: Department of Accounting and Finance, University of Strathclyde, Glasgow, G4 0LN, Scotland, UK
Andrew Marshall: Department of Accounting and Finance, University of Strathclyde, Glasgow, G4 0LN, Scotland, UK

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2002, vol. 05, issue 03, 373-394

Abstract: This paper examines mispricing, volatility and parity on the Hang Seng Index (HSI) options and futures market. Most of the previous research has focused on futures contracts; we update this research and extend it by considering also option contracts. It is also important to examine these issues post 1997 Asian crisis. We find mispricing of HSI futures and option contracts if no transaction costs were considered. However, by incorporating transaction costs, the HSI futures are bounded within the arbitrage free region and most of the mispricing of the HSI options disappears. Additional tests on the mispricing series reveals that most of the derivative HSI contracts are positively autocorrelated and that the mispricing series for both derivative contracts are not identical among the different contract months. From our results we cannot conclude that there is causal relationship between the mispricing and the spot index volatility. Finally, our empirical results show that for HSI derivative contracts future and option parity holds, supporting our mispricing test that the HSI derivative market is efficient and has not been adversely affected by the Asian economic crisis.

Keywords: Futures; Options; Index; Mispricing; Volatility; Parity (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2002
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091502000869
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:rpbfmp:v:05:y:2002:i:03:n:s0219091502000869

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091502000869

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().