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Efficiency of S&P CNX Nifty Index Option of the National Stock Exchange (NSE), India, using Box Spread Arbitrage Strategy

Gadjah Mada International Journal of Business

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Title Efficiency of S&P CNX Nifty Index Option of the National Stock Exchange (NSE), India, using Box Spread Arbitrage Strategy
 
Creator Girish, G. P.
Rastogi, Nikhil
 
Description Box spread is a trading strategy in which one simultaneously buys and sells options having the same underlying asset and time to expiration, but different exercise prices. This study examined the efficiency of European style S&P CNX Nifty Index options of National Stock Exchange, (NSE) India by making use of high-frequency data on put and call options written on Nifty (Time-stamped transactions data) for the time period between 1st January 2002 and 31st December 2005 using box-spread arbitrage strategy. The advantages of box-spreads include reduced joint hypothesis problem since there is no consideration of pricing model or market equilibrium, no consideration of inter-market non-synchronicity since trading box spreads involve only one market, computational simplicity with less chances of mis-specification error, estimation error and the fact that buying and selling box spreads more or less replicates risk-free lending and borrowing. One thousand three hundreds and fifty eight exercisable box-spreads were found for the time period considered of which 78 Box spreads were found to be profitable after incorporating transaction costs (32 profitable box spreads were identified for the year 2002, 19 in 2003, 14 in 2004 and 13 in 2005) The results of our study suggest that internal option market efficiency has improved over the years for S&P CNX Nifty Index options of NSE India.     
 
Publisher Master of Management, Faculty of Economics and Business, Universitas Gadjah Mada
 
Contributor —
 
Date 2014-09-29
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier https://journal.ugm.ac.id/gamaijb/article/view/5473
10.22146/gamaijb.5473
 
Source Gadjah Mada International Journal of Business; Vol 15, No 3 (2013): September - December; 269-285
2338-7238
1411-1128
 
Language eng
 
Relation https://journal.ugm.ac.id/gamaijb/article/view/5473/4447