CAC40 Index Options' Market Efficiency

26 Pages Posted: 21 Jun 2019

See all articles by Olfa Belhassine

Olfa Belhassine

University of Manouba - ESCT-Business School of Tunis

Chokri Mamoghli

Institut Supérieur de Gestion

Date Written: Dec 2005

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.

Keywords: Market Efficiency, Index Options, No Arbitrage Principle, Transaction Costs, Ex Post Tests, Ex Ante Tests

JEL Classification: G14

Suggested Citation

Belhassine, Olfa and Mamoghli, Chokri, CAC40 Index Options' Market Efficiency (Dec 2005). Available at SSRN: https://ssrn.com/abstract=3405065 or http://dx.doi.org/10.2139/ssrn.3405065

Olfa Belhassine (Contact Author)

University of Manouba - ESCT-Business School of Tunis ( email )

Campus Universitaire de La Manouba
la Manouba, Manouba 2010
Tunisia

Chokri Mamoghli

Institut Supérieur de Gestion ( email )

Campus Universitaire
Le Bardo 2000
Tunis, TN El Manar 2000
Tunisia

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