Journal of Financial Economics Vol. 8 No. 4 1980
An ex ante analysis of put-call parity
Abstract
The authors previously had extended the theoretical put-call parity models developed by Stoll (1969) and Merton (1973) to include a dividend term. Ex post tests of the models were generally consistent with market efficiency, but a sufficient number of hedges had high enough returns to warrant analysis of ex ante results. The purpose of this study was to construct hedges 5 and 15 minutes after they were initially identified as having an ex post return in excess of $20 per hedge. The results indicate that mispriced options adjust and that economic profit is sensitive to the level of transaction costs and unlikely even for member firms.
- DOI
- 10.1016/0304-405x(80)90008-2
- Volume
- 8
- Issue
- 4
- Pages
- 363-378
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref