Efficiency Tests of the French Index (CAC 40) Options Market

53 Pages Posted: 19 Sep 2001

See all articles by Gunther Capelle-Blancard

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); PSB Paris School of Business

Mo Chaudhury

McGill University - Desautels Faculty of Management

Date Written: October 30, 2001

Abstract

This paper examines the efficiency of the French options market (MONEP) using transaction data on CAC 40 index options during the period January 02, 1997 through December 30, 1999. In terms of contract volume, CAC 40 options are the most heavily traded index options in the world. We test several no arbitrage conditions (lower boundary, put-call parity, box spread, call spread, put spread, call convexity and put convexity) taking transaction costs and short sale constraints into account. Overall, our results support efficiency of the MONEP as the frequency of arbitrage condition violation is low. However, the size of the profit potential for low cost institutional traders in some strategies is a concern. While the shift to the Euro and the associated changes in the option contract specification improved volume, we do not find any clear evidence of enhanced efficiency. There is some evidence that arbitrage condition violations coincide with brisk trading and exhibit systematic patterns opposite to those found in the US.

Keywords: market efficiency, index options, no arbitrage conditions.

JEL Classification: G13, G14

Suggested Citation

Capelle-Blancard, Gunther and Chaudhury, Mo, Efficiency Tests of the French Index (CAC 40) Options Market (October 30, 2001). Available at SSRN: https://ssrn.com/abstract=283695 or http://dx.doi.org/10.2139/ssrn.283695

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

PSB Paris School of Business ( email )

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Paris, 75013
France

Mo Chaudhury (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A 1G5
Canada
(514) 398-5927 (Phone)
(514) 398-3876 (Fax)

HOME PAGE: http://www.mcgill.ca/desautels/mo-chaudhury

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