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

Author

Listed:
  • Fabrice Riva

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Laurent Deville

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

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

Suggested Citation

  • Fabrice Riva & Laurent Deville, 2006. "The Determinants of the Time to Efficiency in OptionsMarkets: A Survival Analysis Approach," Post-Print halshs-00163250, HAL.
    • Handle: RePEc:hal:journl:halshs-00163250
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    Cited by:

    1. François-Heude, Alain & Yousfi, Ouidad, 2013. "On the liquidity of CAC 40 index options Market," MPRA Paper 47921, University Library of Munich, Germany, revised 01 Jul 2013.
    2. Alain François-Heude & Ouidad Yousfi, 2014. "On the liquidity of CAC 40 index options market," Post-Print hal-02050806, HAL.

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