Pricing efficiency and arbitrage: Hong Kong derivatives markets revisited

This study updates the issue of arbitrage and joint market efficiency of the Hong Kong derivatives markets from three aspects: (1) put-call-futures parity is tested on a much more recent and larger data set (2002-2004); (2) the period covers several major events that exert remarkable shocks to the economy; and (3) the data set is generated from the more mature markets. Contradicting previous researches which conclude that the markets are theoretically efficient, our findings suggest that the put-call-futures parity is violated. However, ex-post and ex-ante tests indicate that although arbitrage opportunities indeed exist, profit magnitudes are not attractive. We therefore conclude that these markets are efficiently priced, albeit theoretically inefficient.