Call & Put Butterfly Spreads Test of SET50 Index Options Market Efficiency and SET50 Index Options Contract Adjustment

Abstract—This paper tests the efficiency of SET50 Index Options market and investigates the impact of contract adjustment on market efficiency. The options data set I employ to conduct call & put butterfly spreads test of market efficiency covers the period from October 29, 2007 to December 30, 2016. When I ignore transaction costs, the results report frequent and substantial violations of pricing relationships. For an option maturing within 90 days, size of violations tends to be higher for options farther from the money or further away from expiration. Almost no violations remain after considering the bid-ask spread as transaction costs. Therefore, our results support the efficiency of SET50 Index Options market before and after the modification of contract specification. Comparing the results before and after contract adjustment, I do not observe any improvement of market efficiency after the modification of contract.