Options and Market Efficiency

By Rajeev R. Bhattacharya

I use five separate measures of deviation from Put-Call Parity of options on a stock without splits or dividends as separate negative measures for efficiency of the market ecosystem consisting of the underlying stock, derivatives, and risk-free securities. I develop a theory of trading volume as a function of short sales costs, dispersion of investor valuations, float, and transaction costs, and that of market efficiency as a function of trading volume and number of analysts covering the stock. I use Three-Stage Least Squares (3SLS) to estimate this structural system, separately for Nasdaq and non-Nasdaq U.S. stocks, over 1996-2015. I find, contrary to much previous theoretical and empirical work, that the impact of short sales costs & constraints on market efficiency is not significantly negative and that the impact of trading volume on market efficiency is not significantly positive.

• Format: Paperback
• Language: English
• ISBN: 6200532281
• ISBN13: 9786200532282
• Release Date: January 2020
• Publisher: LAP Lambert Academic Publishing
• Length: 88 Pages
• Weight: 0.31 lbs.
• Dimensions: 0.2" x 6.0" x 9.0"