ABSTRACT
Puttonen, Vesa (1993). The efficiency of the Finnish stock index derivatives markets. Acta Wasaensia No 31, 171 p.
This doctoral thesis examines the efficiency of the Finnish stock index options and futures markets for the period from the 2nd May, 1988 to the end of December, 1990. The thesis consists of a summary chapter and five essays. The first essay examines the ex ante profitability of index arbitrage in the relatively new Finnish stock index futures markets. The results are inconsistent with the basic cost-of-carry model. Most of the violations from the model are attributed to different market imperfections such as restrictions on short sehing, illiquidity of the markets, voting power related to stocks and fiscal reasons. The second essay examines the nature of early and delayed unwindings in the Finnish futures markets. Several rollover profits are reported. The third essay tests the boundary conditions for the FOX (Finnish Options Index) index call and put options. Violations of the lower boundary for calls are reported for deep-in-the-money options. Put options have traded clearly above their rational lower boundary. The fourth essay examines the intertemporal relationship between the FOX stock index cash and derivatives markets. A significant information flow from futures and option returns to the underlying index is found. The predictive power can be further improved by allowing the relation between the returns to be different for positive and negative index returns. The fifth essay studies the flow of information between the cash markets in Finland and Sweden and the index futures market in Finland. The results suggest that volatility relations contain different information than suggested by the traditional lead-lag relations. Volatility is found to flow from the Finnish stock and futures markets to the Swedish stock market. Vesa Puttonen, Department of Accounting and Finance, Faculty of Accounting and Industrial Management, University of Vaasa, Raastuvankatu 31, SF-65100 Vaasa, Finland.