A study of arbitrage efficiency between the Taifex index
future and option contracts
Chuang-Chang Chang
Professor
Department of Finance
National Central University
Shu-Ying Lin
Associate Professor
Department of Finance
Minghsin University of Science and Technology
Jia-Haur Tzeng
Department of Economics
National Central University
臺指期貨選擇權套利效率之研究
張 傳 章
國立中央大學財務金融系教授
林 淑 瑛
明新科技大學財務金融系副教授
鄭家豪
國立中央大學經濟學研究所
ABSTRACT
The aim of this paper is to examine the variation of arbitrage efficiency using
trade data in the Taiwanese market. Assuming order execution at the next
immediate price following a mispricing signal, the execution of individual
components is traced and the execution delay is significantly different with the
properties of contracts. Ex ante performance can be improved by adopting four
trading strategies derived from the properties of contract. The analysis of
continuance of mispricing signals shows that execution delay is highly correlated with
arbitrage efficiency. In other words, the four trading strategies could be the frame of
reference for traders when a mispricing signal is found. This study also examines
early unwinding strategy and goes further to see the profitable of combining early
unwinding strategy with previous four strategies, and found that ex ante profit can be
improve by adopting combination of those strategies which are used to reduce
execution risk.