Empirical tests of the efficiency of the currency futures options market

✍ Scribed by Joseph P. Ogden; Alan L. Tucker

• Publisher: John Wiley and Sons
• Year: 1987
• Tongue: English
• Weight: 425 KB
• Volume: 7
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990070608

✦ Synopsis

his study investigates empirically the efficiency of the currency futures T options market, Synchronous transactions data are used to test six arbitrage pricing conditions applicable to American futures options. Results support market efficiency for the period studied; few violations of these conditions are observed for American options traded on British pound, Deutschemark, and Swiss franc futures.

I. INTRODUCTION

The Chicago Mercantile Exchange (CME) began American options trading on Deutschemark futures contracts in January, 1984. Currently, the CME provides options trading on British pound, Canadian dollar, Deutschemark, Japanese yen, and Swiss franc futures. The purpose of this study is to test empirically the efficiency of the American currency futures options market. Synchronous transactions data are used to test six arbitrage pricing conditions applicable to these options. Results support market efficiency for the period studied; few violations of these conditions are observed for American options traded on British pound, Deutschemark, and Swiss franc futures.

This study is developed in the following sections. Section I1 presents the six arbitrage pricing conditions tested. Data used in these tests are described in Section 111. Empirical results are reported in Section IV. Section V summarizes the results.