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Efficiency of the options market and arbitrage strategy: a meta-analysis

Saeed Fathi (Department of Management, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran)
Zeinab Fazelian (Department of Management, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 30 April 2024




The empirical studies of the options market efficiency have reported contradictory results, which sometimes confuse practitioners and academicians. The aim of this study was to clarify several aspects of options market efficiency by exploring the answers to two main questions: Under what conditions is the options market more efficient? Are the discrepancies in the estimated efficiency due to the reality of efficiency or mismeasurement?


Using a meta-analysis approach, 54 studies have been analyzed, which included 1,315 tests. The sum of the observations for all of the tests is 3.7 m observation sets. The effect size (type r) has been used to compare the different statistics in different studies. The cumulative effect size and its diversification have been calculated by the random effects model and Q statistic, respectively.


The most interesting finding of the study was that the options market, in all circumstances, is significantly inefficient. Another important finding was that the heterogeneity of options market efficiency is due to the complexity of pricing relations, test time, violation index and price type. To overcome this heterogeneity and accuracy, future studies should test the no-arbitrage options pricing relations at different times and by different price types, using complex and simple pricing relations and either mean violation or violation ratio efficiency measures.


Public disagreement about the options market efficiency in past studies means that this variable is heterogeneous in different conditions. As a significant contribution, this study develops the literature by proposing the causes of options market efficiency heterogeneity.



Fathi, S. and Fazelian, Z. (2024), "Efficiency of the options market and arbitrage strategy: a meta-analysis", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print.



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