Tests of options market efficiency : a study of the European Options Exchange

Joo, Tan How (1990) Tests of options market efficiency : a study of the European Options Exchange. PhD thesis, University of Glasgow.

Abstract

The objective of this study is to provide evidence on the efficiency of the stock options market of the European Options Exchange. `Riskless' spreading and hedging strategies using the Black-Scholes call option pricing model with the Merton dividend adjustment, are used to test market efficiency. The results show that, although for the zero transactions costs case above-normal returns are possible, these returns become negative when the bid-ask spread cost is taken into account. These results persist over the two sample periods studied. Two variations of the trading rule that compute model prices by using the same model but with two different estimators of the standard deviation of the underlying stock's return as inputs to the model, also produce similar results. The study concludes that, with respect to the trading rules used and the sample periods studied, there were no inefficiencies on the stock options market of the European Options Exchange.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Subjects: H Social Sciences > HG Finance
• Colleges/Schools: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Supervisor's Name: Dickinson, Prof. John P.
• Date of Award: 1990
• Depositing User: Elaine Ballantyne
• Unique ID: glathesis:1990-1872
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 01 Jun 2010
• Last Modified: 10 Dec 2012 13:47
• URI: https://theses.gla.ac.uk/id/eprint/1872