The Determinants of the Time to Efficiency in Options Markets: A Survival Analysis Approach

35 Pages Posted: 15 Mar 2005

See all articles by Laurent Deville

Laurent Deville

EDHEC Business School

Fabrice Riva

Université Paris-Dauphine, PSL Research University

Date Written: November 2004

Abstract

This paper examines the determinants of the time it takes for an index options market to be brought back to efficiency after put-call parity deviations, using intraday transactions data from the French CAC 40 index options over the August 2000 - July 2001 period. We address this issue through survival analysis which allows us to characterize how differences in market conditions influence the expected time before the market reaches the no-arbitrage relationship. We find that moneyness, maturity, trading volume as well as trade imbalances in call and put options, and volatility are important in understanding why some arbitrage opportunities disappear faster than others. After controlling for differences in the trading environnement, we find evidence of a negative relationship between the existence of ETFs on the index and the time to efficiency.

Keywords: Index options, market efficiency, survival analysis, exchange traded funds

JEL Classification: C41, G13, G14

Suggested Citation

Deville, Laurent and Riva, Fabrice, The Determinants of the Time to Efficiency in Options Markets: A Survival Analysis Approach (November 2004). Available at SSRN: https://ssrn.com/abstract=685948 or http://dx.doi.org/10.2139/ssrn.685948

Laurent Deville (Contact Author)

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Fabrice Riva

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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