An empirical study of pricing efficiency and arbitrage opportunity in Hong Kong HSI futures and options markets

Abstract

The objective of this study is to investigate the pricing efficiency for HSI and Mini-HSI futures and options contracts, this will assist investors to avoid the volatility of the market, reduce the risk from the spot market, and test or verify the existence of arbitrage opportunities. The results suggest that the price of Mini-HSI Index futures market fails to follow the theoretical put-call-futures parity model. This paper considers about ex post and ex ante. After add transaction cost in the least linear regression, the result proved that the HSI futures market exists arbitrage opportunity even through transaction costs are considered. During January 2010 to June 2011 mispricing existed in the market.