This study provides evidence that arbitrageurs execute the trades would face market makers to eliminate arbitrage opportunities. However, traders with lower transaction costs, such as member arbitrageurs would more easily grasp such opportunities. For non-member arbitrageurs, the chances are fewer than member arbitrageurs. But, the magnitudes of average profits for non-member are much higher.
When implementing dynamic arbitrage, the arbitrage signals derive from bid/ask quotes are more profitable and provide much more opportunities. The early-unwinding strategy also provides another profitable method. Due to market liquidity and market risk, the arbitrage profits would attain trade-off. The simultaneous effects between liquidity and mispricing would make market making system more efficient. Yet, there are many arbitrage properties (MY, T, and D) of this parity condition and available information (Int and OI) for arbitrageurs to control. As a result, arbitrageurs must carefully notice the shift of liquidity before submitting arbitrage orders, ceteris paribus.
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Appendix
Table 6 Ex-post arbitrage profit of the hold-to-expiration strategy with transaction prices
Overall Moneyness Level = 0 Moneyness Level = 1 Moneyness Level = 2
Mean Max 95% Mean Max 95% Mean Max 95% Mean Max 95%
t-value {Med} (99%) t-value {Med} (99%) t-value {Med} ( 99%) t-value {Med} ( 99%) N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min]
Panel A: Zero spread cost
Overall 4.98 462.66 15.05 4.55 258.24 13.99 7.32 346.72 24.12 18.94 462.66 59.28
501.97** {3.00} (28.56) 539.81** {2.99} (23.09) 170.91** {4.11} (53.02) 20.52** {8.95} (183.50) 490033 <6.95> [0.00] 419017 <5.45> [0.00] 69664 <11.31> [0.00] 1352 <33.93> [0.00]
Long-futures Strategy 5.57 346.72 16.04 5.32 258.24 24.58 7.30 346.72 23.45 16.02 281.24 64.14
462.98** {3.94} (27.92) 474.53** {3.90} (24.58) 133.68** {4.25} (49.61) 13.16** {7.48} (143.77) 304448 <6.64> [0.00] 268022 <5.81> [0.00] 35928 <10.35> [0.00] 498 <27.17> [0.00]
Short-futures Strategy 4.01 462.66 12.51 3.17 254.01 9.10 7.35 320.06 24.86 20.63 462.66 59.06
236.10** {2.09} (29.86) 277.68** {2.01} (19.18) 110.18** {3.89} (58.80) 16.20** {9.34} (189.56) 185585 <7.31> [0.00] 150995 <4.43> [0.00] 33736 <12.25> [0.00] 854 <37.22> [0.00]
T-test of 1.57 2.15 -0.05 -4.61
different strategy
75.20** 134.61** -0.52 -2.62**
profit <6.90> <5.35> <11.31> <33.87>
Panel B: Zero cost
Overall 5.12 250.41 15.05 4.69 250.41 13.80 21.14 244.37 72.31 11.03 55.73 55.73
102.33** {2.92} (40.63) 112.22** {2.86} (32.37) 21.48** {11.23} (151.41) 3.09** {4.91} (55.73) 33208 <9.11> [0.00] 32340 <7.52> [0.00] 851 <28.71> [0.09] 17 <14.69> [0.26]
Long-futures Strategy 4.62 244.37 13.40 4.43 218.31 13.00 18.23 244.37 64.35 35.37 55.73 55.73
110.54** {2.85} (30.92) 120.62** {2.82} (26.85) 13.60** {7.76} (151.41) 1.74 {35.37} (55.73) 31193 <7.38> [0.00] 30754 <6.44> [0.00] 437 <28.02> [0.09] 2 <28.80> [15.01]
Short-futures Strategy 12.79 250.41 51.07 9.85 250.41 37.39 24.21 194.88 78.20 7.78 29.59 29.59
26.70** {5.50} (104.96) 21.86** {4.18} (77.95) 16.90** {14.46} (144.06) 3.15** {4.91} (29.59) 2015 <21.50> [0.01] 1586 <17.95> [0.01] 414 <29.14> [0.13] 15 <9.57> [0.26]
T-test of -8.16 -5.42 -5.98 27.59
different strategy
-16.98** -12.00** -3.05** 1.34
profit <8.90> <7.43> <28.57> <11.86>
Table 6 (continued)
Panel C: Members cost
Overall 8.05 245.89 31.47 6.75 245.89 24.55 25.48 239.23 91.05 20.20 45.15 45.15
44.54** {3.66} (73.62) 44.04** {3.36} (59.16) 18.26** {15.43} (163.12) 3.02** {16.74} (45.15) 7421 <15.58> [0.00] 6902 <12.73> [0.00] 514 <31.63> [0.04] 5 <14.96> [7.14]
Long-futures Strategy 6.58 239.23 23.71 5.90 209.49 20.12 25.58 239.23 96.74 26.14 45.15 45.15
42.03** {3.29} (57.58) 44.31** {3.20} (50.25) 11.23** {14.02} (163.12) 1.38 {26.14} (45.15) 6469 <12.58> [0.00] 6248 <10.53> [0.00] 219 <33.72> [0.11] 2 <26.88> [7.14]
Short-futures Strategy 18.10 245.89 63.05 14.82 245.89 57.36 25.40 185.79 79.57 16.23 21.21 21.21
21.10** {8.55} (136.41) 15.75** {6.81} (116.17) 14.52** {16.38} (172.10) 5.35** {16.74} (21.21) 952 <26.47> [0.01] 654 <24.07> [0.01] 295 <30.05> [0.04] 3 <5.25> [10.74]
T-test of -11.53 -8.92 0.19 9.91
different strategy
-13.22** -9.38** 0.07 0.67
profit <15.10> <12.46> <31.66> <16.10>
Panel D: Non-members cost
Overall 17.41 236.89 62.78 14.56 236.89 53.22 28.05 230.23 95.18 14.46 36.15 36.15
26.38** {8.34} (145.45) 22.35** {6.85} (106.83) 15.09** {16.24} (163.10) 1.92 {9.98} (36.15) 1583 <26.26> [0.01] 1245 <22.99> [0.01] 334 <33.98> [0.10] 4 <15.08> [1.74]
Long-futures Strategy 14.57 230.23 52.92 12.56 200.49 46.14 28.19 230.23 116.35 36.15 36.15 36.15 21.00** {6.77} (117.47) 19.85** {5.89} (97.44) 9.17** {15.84} (156.28) n.a {36.15} (36.15) 1120 <23.23> [0.01] 976 <19.76> [0.01] 143 <36.76> [0.31] 1 n.a [36.15]
Short-futures Strategy 24.27 236.89 83.65 21.84 236.89 73.06 27.96 176.79 93.03 7.23 12.21 12.21
12.14** {16.78} (171.76) 2.39** {7.74} (12.21) 463 <31.42> [0.01] 269 <31.06> [0.01] 191 <31.83> [0.10] 3 <5.25> [1.74]
T-test of -9.69 -9.28 0.23 28.91
different strategy
-5.99** -4.65** 0.06 4.77**
profit <25.89> <22.68> <34.03> <5.25>
In this table, the three categories are classified according to the levels of moneyness of the options described in Table1. For example, moneyness level=1 merges Level = -1 and Level = +1, and moneyness level =2 merges Level =-2 and Level = +2, and so forth. “Zero spread cost” refer to the class of arbitragers without any costs. ”Zero cost
“ refers to the class of arbitrageurs who do not incur any transaction costs. “Members” and “Nonn-members” categories refer to members and non-members of the Taiwan Futures Exchange, respectively. Each panel is subdivided to show the distribution of the magnitude of the mispricings for each strategy. The category on long-futures strategy represents the distribution of the mispricongs when the futures are under price and the short-futures strategy represents the distribution when the futures are over price. The
“Overall” category represents the combination of the two categories. 95% and 99% represent the 95 and 99 percentiles, respectively.
= utures strategy profit equals:
Short-futures strategy profit equals: e
TS( F
0− F
0+) ; if F
0> F
0+; Long-f e
TL= ( F
0−− F
0) ; if F
0< F
0−**Indicate statistical significance at the 0.01 level
*Indicate statistical significance at the 0.05 level
Table 7 Ex-post arbitrage profit of the hold-to-expiration strategy with bid/ask quotes
Overall Exercise Price Category = 1 Exercise Price Category = 2 Exercise Price Category = 3
Mean Max 95% Mean Max 95% Mean Max 95% Mean Max 95%
t-value {Med} (99%) t-value {Med} (99%) t-value {Med} ( 99%) t-value {Med} ( 99%)
N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min]
Panel A: Zero cost
Overall 4.08 339.72 12.54 4.02 182.00 12.09 4.36 339.72 13.71 8.40 190.26 30.04
409.73** {2.51} (20.94) 407.40** {2.51} (19.10) 127.48** {2.43} (31.35) 15.56** {4.17} (79.46) 277506 <5.25> [0.00] 234221 <4.78> [0.00] 42497 <7.05> [0.00] 788 <15.15> [0.00]
Long-futures Strategy 4.64 339.72 13.10 4.63 182.00 13.04 4.71 339.72 14.35 8.57 190.26 29.46 398.51** {3.05} (21.02) 390.72** {3.06} (20.00) 115.48** {2.86} (30.76) 10.37** {4.62} (83.57) 203941 <5.26> [0.00] 177285 <4.99> [0.00] 26301 <6.61> [0.00] 355 <15.58> [0.01]
Short-futures Strategy 2.53 317.56 8.00 2.13 119.02 6.21 3.79 317.56 12.24 8.25 179.00 31.19 140.31** {1.35} (19.12) 148.76** {1.06} (14.37) 62.89** {1.89} (31.95) 11.60** {4.06} (65.64) 73565 <4.89> [0.00] 56936 <3.41> [0.00] 16196 <7.67> [0.00] 433 <14.81> [0.00]
T-test of 2.12 2.50 0.92 0.32
different strategy 98.54** 134.60** 12.65** 0.30
profit <5.17> <4.65> <7.03> <15.16>
Table 7 (continued)
Panel B: Members cost
Overall 4.56 334.57 13.36 4.21 177.05 12.27 6.92 334.57 25.78 15.70 179.73 58.61
155.69** {2.83} (30.71) 165.60** {2.74} (25.05) 46.33** {3.38} (54.74) 8.59** {7.55} (166.90) 60067 <7.18> [0.00] 52798 <5.84> [0.00] 7087 <12.57> [0.00] 182 <24.65> [0.02]
Long-futures Strategy 4.35 334.57 12.55 4.14 177.05 11.95 6.14 334.57 22.65 14.82 179.73 71.68 161.49** {2.82} (26.89) 165.16** {2.77} (22.72) 43.00** {3.21} (41.68) 5.26** {4.50} (179.73) 54551 <6.29> [0.00] 49306 <5.57> [0.00] 5160 <10.26> [0.00] 85 <26.00> [0.06]
Short-futures Strategy 6.68 306.84 25.97 5.13 112.74 19.30 9.00 306.84 34.42 16.47 166.90 56.45
38.56** {2.90} (59.64) 34.66** {2.35} (43.21) 23.06** {3.90} (71.57) 6.90** {8.73} (166.90) 5516 <12.87> [0.00] 3492 <8.75> [0.00] 1927 <17.14> [0.01] 97 <23.52> [0.02]
T-test of -2.34 -0.99 -2.86 -1.65
different strategy -13.32** -6.59** -6.89** -0.45
profit <7.15> <5.83> <12.51> <24.71>
Panel C: Non-members cost
Overall 7.94 325.57 30.93 6.42 168.05 25.25 12.91 325.57 45.16 22.85 170.73 70.86 45.21** {3.36} (65.88) 40.97** {2.96} (59.84) 23.31** {6.94} (78.39) 6.52** {10.73} (170.73) 7165 <14.87> [0.00] 5609 <11.74> [0.00] 1478 <21.30> [0.01] 78 <30.95> [0.83]
Long-futures Strategy 6.85 325.57 26.65 5.95 168.05 22.86 10.89 325.57 33.44 27.21 170.73 70.86 41.63** {3.15} (58.89) 37.67** {2.82} (55.86) 19.72** {6.58} (59.99) 4.27** {13.07} (170.73) 6095 <12.84> [0.00] 5086 <11.26> [0.00] 979 <17.28> [0.01] 30 <34.91> [1.12]
Short-futures Strategy 14.17 297.84 50.81 11.04 103.74 41.21 16.88 297.84 58.22 20.12 157.90 60.63 20.82** {6.98} (98.07) 16.94** {5.93} (76.36) 13.91** {8.10} (109.84) 4.94** {9.23} (157.90) 1070 <22.26> [0.01] 523 <14.90> [0.01] 499 <27.11> [0.01] 48 <28.24> [0.83]
T-test of -7.33 -5.09 -5.99 7.09
different strategy -10.46** -7.60** -4.49** 0.98
profit <14.64> <11.65> <21.12> <30.95>
In this table, the three categories are classified according to the levels of moneyness of the options described in Table1. For example, moneyness level=1 merges Level = -1 and Level = +1, and moneyness level =2 merges Level =-2 and Level = +2, and so forth. ”Zero cost”refers to the class of arbitrageurs who do not incur any transaction costs.“Members”and “Non-members”categories refers to members and non-members of the TAIFEX, respectively. 95% and 99% represent the 95 and 99 percentiles, respectively.
Short-futures strategy profit equals: e
BAS= [( F
0b− F
0U) − ( τ
0+ M )]
Long-futures strategy profit equals: e
BAL= [( F
0L− F
0a) − ( τ
0+ M )]
**Indicate statistical significance at the 0.01 level
*Indicate statistical significance at the 0.05 level
Table 8 Ex-ante arbitrage hold-to-expiration strategy with transaction prices
“Zero Spread Cost” refers to the class of arbitrageurs without any costs. “Zero Cost” refers to the class of arbitrageurs who do not incur any transaction costs. “Members” and
“Non-members” categories refer to members and non-members of the TAIFEX. The execution delay is considered as five different categories.
Trade Zero spread Cost Zero Cost Members Cost Non-members Cost
Mean Max Mean Max Mean Max Mean Max
t-value {Med} t-value {Med} t-value {Med} t-value {Med}
N S.D. [Min] N S.D. [Min] N S.D. [Min] N S.D. [Min]
Total number of 3.36 346.72 1.04 244.37 -3.34 239.23 -15.59 230.23
signals 318.40** {2.06} 17.35** {1.80} -14.95** {0.22} -18.07** {-12.85}
490033 <7.40> [-281.24] 33208 <10.97> [-309.10] 7421 <19.22> [-321.09] 1583 <34.32> [-330.09]
0<lag<=3 3.59 346.72 1.91 244.37 -0.85 239.23 -9.15 230.23
324.43** {2.17} 36.40** {2.00} -4.38** {0.88} -10.77** {-6.74}
398923 <6.98> [-254.01] 30192 <9.10> [-248.04] 6518 <15.77> [-259.16] 1246 <30.01> [-268.16]
3<lag<=5 2.58 253.25 -3.40 213.36 -13.96 204.54 -30.14 195.54
62.20** {1.93} -8.65** {-0.27} -10.63** {-8.72} -8.67** {-26.54}
36328 <7.90> [-194.59] 1515 <15.28> [-174.82] 377 <25.50> [-186.36] 120 <38.09> [-195.36]
5<lag<=10 2.37 169.93 -7.79 53.76 -20.31 47.17 -34.29 35.06 43.36** {1.84} -11.76** {-2.62} -12.83** {-16.89} -12.72** {-32.84}
24681 <8.59> [-281.24] 813 <18.88> [-228.55] 264 <25.73> [-233.25] 99 <26.83> [-121.88]
10<lag<=15 2.20 212.46 -12.60 24.74 -29.66 16.70 -51.87 7.70
19.79** {1.44} -5.52** {-5.64} -5.71** {-19.24} -4.49** {-37.49}
7290 <9.49> [-247.00] 176 <30.28> [-309.10] 73 <44.40> [-321.09] 31 <64.26> [-330.09]
15<lag<=30 2.22 162.92 -16.51 7.54 -28.87 -3.11 -41.39 -16.67
19.19** {1.71} -10.53** {-11.30} -9.86** {-23.32} -11.44** {-38.50}
7721 <10.17> [-111.64] 136 <18.29> [-98.42] 51 <20.91> [-106.03] 22 <16.97> [-85.21]
30<lag 2.13 222.43 -18.48 24.06 -35.62 17.55 -57.62 8.55
24.69** {1.57} -12.44** {-9.49} -12.62** {-28.47} -12.58** {-50.36}
15090 <10.62> [-183.50] 376 <28.81> [-212.88] 138 <33.17> [-223.02] 65 <36.93> [-232.02]
Long-futures 4.28 346.72 1.96 244.37 -0.76 239.23 -9.35 230.23
Signal 318.24** {3.01} 38.05** {2.00} -3.75** {0.85} -9.48** {-6.00}
304449 <7.43> [-254.01] 31193 <9.10> [-309.10] 6469 <16.33> [-321.09] 1120 <33.00> [-330.09]
Short-futures 1.86 284.60 -13.15 106.26 -20.83 98.86 -30.69 89.86
Signal 112.78** {1.07} -26.75** {-10.51} -23.98** {-18.63} -20.16** {-29.69}
185584 <7.10> [-281.24] 2015 <22.06> [-194.48] 952 <26.80> [-134.84] 463 <32.76> [-143.84]
T-test of 2.42 15.11 20.06 21.33
different strategy 113.97** 30.58** 22.49** 11.73**
profit <7.30> <10.36> <18.01> <32.93>
**Indicate statistical significance at the 0.01 level. *Indicate statistical significance at the 0.05 level
Table 9 Ex-ante arbitrage profit of the hold-to-expiration strategy with bid/ask quotes
“Zero Cost” refers to the class of arbitrageurs who do not incur any transaction costs. “Members” and “Non-members” categories refer to members and non-members of the TAIFEX. The execution delay is considered as five different categories.
Trade Zero Cost Members Cost Non-members Cost
Mean Max Mean Max Mean Max
t-value {Med} t-value {Med} t-value {Med}
N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min]
Total number of 1.64 165.18 0.75 156.62 -3.43 147.62
signals 114.25** {1.52} 18.45** {1.75} -15.35** {0.29}
277506 <7.58> [-205] 60067 <9.89> [-153] 7165 <18.89> [-128]
0<lag<=3 1.88 165.18 1.17 156.62 -1.87 147.62
136.99** {1.72} 30.82** {1.84} -8.93** {0.49}
266858 <7.10> [-147] 58151 <9.13> [-153] 6786 <17.22> [-93]
3<lag<=5 -2.20 44.39 -7.78 35.93 -25.55 24.30
-16.47** {-0.30} -16.76** {-3.68} -13.88** {-24.35}
6135 <10.47> [-94] 1020 <14.84> [-80] 138 <21.62> [-89]
5<lag<=10 -5.36 51.41 -13.50 33.90 -31.38 24.90
-17.89** {-1.95} -14.11** {-9.45} -11.66** {-29.42}
2564 <15.16> [-160] 445 <20.18> [-119] 94 <26.10> [-128]
10<lag<=15 -10.44 32.80 -23.60 20.66 -37.94 11.66
-12.29** {-4.79} -11.80** {-24.65} -10.08** {-41.59}
473 <18.47> [-85] 110 <20.98> [-81] 37 <22.90> [-90]
15<lag<=30 -13.89 57.03 -25.39 51.13 -41.36 1.47
-12.15** {-6.87} -9.46** {-23.08} -9.43** {-35.22}
360 <21.68> [-102] 87 <25.04> [-91] 31 <24.42> [-100]
30<lag -8.10 47.59 -17.02 40.40 -34.40 31.40
-14.11** {-2.77} -11.14** {-11.84} -11.07** {-37.91}
1116 <19.17> [-205] 254 <24.35> [-95] 79 <27.63> [-100]
Long-futures 2.79 165.18 1.70 156.62 -0.64 147.62
Signal 170.00** {2.60} 45.56** {2.05} -2.99** {0.99}
203941 <7.41> [-205] 54551 <8.71> [-153] 6095 <16.76> [-128]
Short-futures -1.52 120.89 -8.69 115.42 -19.29 106.42
Signal -57.79** {-0.22} -43.73** {-6.65} -28.35** {-19.62}
73565 <7.16> [-101] 5516 <14.76> [-98] 1070 <22.25> [-97]
T-test of 4.31 10.39 18.65
different strategy 138.83** 51.38** 26.14**
profit <7.34> <9.43> <17.69>
**Indicate statistical significance at the 0.01 level. *Indicate statistical significance at the 0.05 level
Table 10 Ex-ante arbitrage profit of the hold-to-expiration strategy with bid/ask quote signal and incorporating the spread cost
The nearest actual transaction is matched to a detected profitable mispricing signal based on the bid/ask quotes. “Zero Cost” refers to the class of arbitrageurs who do not incur any transaction costs. “Members” and “Non-members” categories refer to members and non-members of the TAIFEX.
Trade Zero Cost Members Cost Non-members Cost
Mean Max Mean Max Mean Max
t-value {Med} t-value {Med} t-value {Med}
N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min]
Total number of -9.02 218.31 -9.64 209.49 -16.27 200.49
signals -294.45** {-6.75} -130.49** {-6.02} -48.30** {-9.95}
198993 <13.66> [-474] 46241 <15.88> [-396] 5571 <25.14> [-405]
0<lag<=3 -8.75 218.31 -9.36 209.49 -15.47 200.49
-300.30** {-6.69} -132.40** {-5.99} -48.27** {-9.77}
196359 <12.91> [-443] 45767 <15.12> [-396] 5482 <23.74> [-405]
3<lag<=5 -23.73 39.14 -27.69 24.18 -47.89 7.56
-36.64** {-16.42} -14.75** {-14.51} -8.88** {-48.27}
1684 <26.57> [-273] 293 <32.13> [-193] 40 <34.12> [-128]
5<lag<=10 -34.97 54.24 -45.17 45.76 -86.21 -7.44
-21.47** {-24.90} -10.96** {-39.06} -9.21** {-80.22}
550 <38.19> [-307] 99 <41.00> [-154] 26 <47.74> [-154]
10<lag<=15 -49.56 3.50 -73.76 -3.04 -107.92 -84.28
-9.25** {-34.48} -4.89** {-55.69} -5.29** {-90.97}
62 <42.20> [-197] 11 <50.06> [-157] 3 <35.31> [-149]
15<lag<=30 -64.39 51.43 -94.36 45.55 -151.58 -77.93
-6.56** {-38.50} -4.29** {-61.89} -2.06** {-151.58}
56 <73.44> [-330] 14 <82.28> [-216] 2 <104.16> [-225]
30<lag -39.07 26.15 -48.98 20.12 -56.09 6.55
-12.66** {-23.73} -6.74** {-43.57} -4.18** {-40.49}
282 <51.85> [-474] 57 <54.87> [-193] 18 <56.88> [-178]
Long-futures -6.82 218.31 -7.75 209.49 -12.79 200.49
Signal -222.88** {-5.20} -128.99** {-5.64} -45.23** {-8.83}
149128 <11.82> [-474] 42923 <12.45> [-307] 4989 <19.98> [-287]
Short-futures -15.59 78.20 -34.03 66.84 -46.07 57.84
Signal -212.03** {-10.69} -66.50** {-26.46} -27.46** {-35.64}
49865 <16.42> [-443] 3318 <29.48> [-396] 582 <40.48> [-405]
T-test of 8.77 26.28 33.28
different strategy 110.14** 51.00** 19.56**
profit <13.12> <14.36> <22.99>
**Indicate statistical significance at the 0.01 level. *Indicate statistical significance at the 0.05 level
Table 11 Arbitrage profit of the early-unwinding strategy with transaction prices
Total Same day unwinding Non-same day unwinding
Initial profit Unwinding profit Initial profit Unwinding profit Initial profit Unwinding profit
Mean Max Mean Max Mean Max Mean Max Mean Max Mean Max
t-value {Med} t-value {Med} t-value {Med} t-value {Med} t-value {Med} t-value {Med}
N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min]
Panel A: Zero spread cost
Total 4.97 462.66 3.25 320.06 4.24 462.66 2.74 281.24 9.17 320.06 6.20 320.06
502.92** {3.00} 334.00** {1.68} 415.08** {2.82} 325.62** {1.46} 344.03** {8.03} 144.30** {2.21}
487409 <6.90> [0.00] 487409 <6.80> [0.00] 415470 <6.58> [0.00] 415470 <5.43> [0.00] 71939 <7.15> [0.00] 71939 <11.52> [0.00]
Long-futures strategy 5.57 281.24 3.34 320.06 4.52 281.24 2.73 254.01 9.58 254.75 5.68 320.06 466.23** {3.94} 254.28** {1.55} 358.30** {2.99} 225.94** {1.17} 371.34** {8.93} 134.65** {2.01}
303422 <6.58> [0.00] 303422 <7.23> [0.00] 240867 <6.20> [0.00] 240867 <5.93> [0.00] 62555 <6.45> [0.00] 62555 <10.55> [0.00]
Short-futures strategy 3.98 462.66 3.11 281.24 3.85 462.66 2.76 281.24 6.48 320.06 9.66 229.45 234.32** {2.08} 221.85** {1.87} 227.56** {2.04} 247.96** {1.69} 60.87** {3.96} 57.80** {4.03}
183987 <7.29> [0.00] 183987 <6.02> [0.00] 174603 <7.06> [0.00] 174603 <4.65> 9384 <10.32> [0.00] 9384 <16.19> [0.00]
T-test of 1.59 0.22 0.68 -0.03 3.09 -3.98
different strategy 76.37** 11.70** 32.15** -1.93 28.24** -23.10**
profit <6.85> <6.80> <6.57> <5.43> <7.08> <11.45>
Panel B: Zero cost
Total 4.98 250.41 8.71 250.41 8.91 209.26 9.37 198.25 4.70 250.41 8.66 250.41
102.26** {2.94} 86.64** {3.20} 29.55** {4.72} 24.49** {3.89} 99.70** {2.87} 83.16** {3.18}
30836 <8.55> [0.00] 30836 <17.65> [0.00] 2032 <13.60> [0.00] 2032 <17.24> [0.00] 28804 <8.00> [0.00] 28804 <17.68> [0.01]
Long-futures strategy 4.60 218.31 8.65 250.41 7.54 120.86 10.01 198.25 4.45 218.31 8.57 250.41 112.01** {2.89} 83.40** {3.20} 29.29** {4.35} 20.92** {4.26} 108.89** {2.85} 80.76** {3.18}
29281 <7.03> [0.00] 29281 <17.74> [0.02] 1489 <9.93> [0.00] 1489 <18.46> [0.05] 27792 <6.81> [0.00] 27792 <17.70> [0.02]
Short-futures strategy 12.03 250.41 9.85 172.95 12.70 209.26 7.61 98.18 11.67 250.41 11.05 172.95 21.98** {5.14} 24.68** {4.51} 14.74** {6.42} 13.44** {3.37} 16.61** {4.23} 20.90** {5.34}
1555 <21.57> [0.01] 1555 <15.73> [0.00] 543 <20.06> [0.01] 543 <13.20> [0.00] 1012 <22.34> [0.02] 1012 <16.82> [0.01]
T-test of -7.85 -1.20 -5.16 2.40 -7.22 -2.48
different strategy -13.53** -2.91** -5.74** 3.24** -10.27** -4.59**
profit <8.39> <17.65> <13.41> <17.21> <7.89> <17.67>
Table 11 (Continued)
Panel C: Members cost
Total 7.54 245.89 19.03 210.68 11.80 126.43 19.24 151.83 7.17 245.89 19.02 210.68
40.02** {3.62} 77.95** {12.17} 16.07** {5.48} 21.34** {11.77} 36.99** {3.45} 74.99** {12.17}
6024 <14.63> [0.00] 6024 <18.95> [4.51] 485 <16.18> [0.00] 485 <19.86> [5.18] 5539 <14.43> [0.00] 5539 <18.87> [4.51]
Long-futures strategy 6.41 209.49 18.86 210.68 9.78 80.29 20.27 151.83 6.19 209.49 18.77 210.68
39.72** {3.36} 75.50** {12.17} 13.89** {5.29} 17.03** {12.17} 37.48** {3.29} 73.72** {12.17}
5415 <11.87> [0.00] 5415 <18.39> [4.51] 328 <12.75> [0.00] 328 <21.55> [5.85] 5087 <11.78> [0.00] 5087 <18.16> [4.51]
Short-futures strategy 17.63 245.89 20.56 171.48 16.01 126.43 17.09 87.07 18.19 245.89 21.76 171.48 15.87** {8.05} 21.72** {11.77} 9.52** {6.79} 13.74** {11.01} 13.20** {8.20} 18.20** {12.05}
609 <27.41> [0.04] 609 <23.36> [4.91] 157 <21.08> [0.04] 157 <15.59> [5.18] 452 <29.29> [0.04] 452 <25.41> [4.91]
T-test of -11.22 -1.69 -6.23 3.17 -12.00 -2.99
different strategy -10.00** -1.73 -3.42** 1.84 -8.65** -2.44*
profit <14.23> <18.95> <15.93> <19.83> <14.05> <18.86>
Panel D: Non-members cost
Total 16.36 236.89 34.46 208.68 22.13 83.65 37.46 149.83 15.75 236.89 34.14 208.68
19.95** {7.59} 40.46** {29.13} 10.68** {17.79} 12.54** {28.27} 17.94** {6.73} 38.49** {30.04}
938 <25.12> [0.01] 938 <26.08> [12.20] 90 <19.66> [0.01] 90 <28.34> [13.25] 848 <25.57> [0.01] 848 <25.83> [12.20]
Long-futures strategy 14.06 200.49 34.45 208.68 18.73 71.29 41.94 149.83 13.64 200.49 33.78 208.68 17.41** {5.93} 36.57** {30.32} 8.74** {16.39} 10.39** {30.18} 15.91** {5.20} 35.28** {31.58}
740 <21.97> [0.01] 740 <25.63> [12.20] 61 <16.74> [0.07] 61 <31.52> [13.48] 679 <22.35> [0.01] 679 <24.95> [12.20]
Short-futures strategy 24.96 236.89 34.48 169.48 29.30 83.65 28.04 64.48 24.22 236.89 35.59 169.48 10.61** {13.50} 17.46** {23.74} 6.73** {27.15} 8.87** {19.55} 9.12** {12.36} 15.88** {24.60}
198 <33.12> [0.01] 198 <27.78> [12.43] 29 <23.45> [0.01] 29 <17.02> [13.25] 169 <34.50> [0.11] 169 <29.13> [12.43]
T-test of -10.90 -0.03 -10.58 13.90 -10.57 -1.81
different strategy -4.38** -0.01 -2.18* 2.71** -3.79** -0.74
profit <24.74> <26.10> <19.13> <27.74> <25.23> <25.83>
The table is calculated based on Eqs. (8) and (9).
The initial profit is obtained from initial arbitrage position for the unwinding trade.
The unwinding profit represents incremental profit for the unwinding trade.
The total profit from unwinding equals that initial profit plus unwinding profit.
No spread cost refers to the class of arbitrageurs without any cost.
Zero-cost refers to the class of arbitrageurs who do not incur any transaction cost
Members and Nonmembers refer to the members and nonmembers of the TAIFEX, respectively.
**Indicate statistical significance at the 0.01 level
*Indicate statistical significance at the 0.05 level
Table 12 Arbitrage profit of the early-unwinding strategy with bid/ask quotes
Total Same day unwinding Non-same day unwinding
Initial profit Unwinding profit Initial profit Unwinding profit Initial profit Unwinding profit
Mean Max Mean Max Mean Max Mean Max Mean Max Mean Max
t-value {Med} t-value {Med} t-value {Med} t-value {Med} t-value {Med} t-value {Med}
N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min] N <S.D.> [Min]
Panel A: Zero cost
Total 4.08 317.56 3.15 317.56 2.86 260.00 1.77 179.00 5.14 317.56 4.34 317.56
411.87** {2.51} 255.08** {1.04} 190.12** {1.50} 184.15** {0.99} 410.62** {4.00} 207.21** {1.82}
270976 <5.16> [0.00] 270976 <6.42> [0.00] 125279 <5.32> [0.00] 125279 <3.40> [0.00] 145697 <4.78> [0.00] 145697 <7.99> [0.00]
Long-futures strategy 4.65 260.00 3.35 317.56 3.17 260.00 1.83 179.00 5.54 171.00 4.26 317.56
401.30** {3.06} 219.77** {1.06} 152.59** {1.92} 135.13** {0.99} 423.16** {4.63} 188.41** {1.55}
201519 <5.20> [0.00] 201519 <6.84> [0.00] 75677 <5.72> [0.00] 75677 <3.73> [0.00] 125842 <4.64> [0.00] 125842 <8.02> [0.00]
Short-futures strategy 2.44 317.56 2.57 162.98 2.37 242.00 1.67 162.98 2.61 317.56 4.83 86.12
137.80** {1.19} 135.61** {1.02} 115.01** {1.07} 132.24** {0.99} 75.98** {1.73} 87.50** {2.76}
69457 <4.67> [0.00] 69457 <4.99> [0.00] 49602 <4.60> [0.00] 49602 <2.81> [0.00] 19855 <4.85> [0.00] 19855 <7.78> [0.00]
T-test of 2.20 0.78 0.80 0.17 2.92 -0.57
different strategy 104.01** 31.95** 27.16** 8.96** 79.37**
profit <5.07> <6.42> <5.30> <3.39> <4.67> <7.98>
-9.57**
Table 12 (Continued)
Panel B: Members cost
Total 4.59 255.89 12.73 313.50 7.84 255.89 11.77 118.62 4.32 179.73 12.82 313.50
157.11** {2.89} 313.32** {9.61} 42.42** {4.02} 87.90** {9.11} 159.05** {2.82} 300.95** {9.64}
54683 <6.84> [0.00] 54683 <9.50> [4.40] 4333 <12.17> [0.00] 4333 <8.81> [4.42] 50350 <6.09> [0.00] 50350 <9.56> [4.40]
Long-futures strategy 4.41 255.89 12.78 313.50 7.89 255.89 12.97 118.62 4.21 179.73 12.77 313.50 160.27** {2.88} 307.24** {9.64} 35.01** {4.06} 67.20** {9.62} 163.91** {2.83} 300.05** {9.64}
50454 <6.18> [0.00] 50454 <9.35> [4.52] 2794 <11.91> [0.00] 2794 <10.21> [4.52] 47660 <5.60> [0.00] 47660 <9.29> [4.59]
Short-futures strategy 6.79 237.46 12.16 260.99 7.77 237.46 9.57 50.90 6.23 166.90 13.63 260.99 36.84** {3.03} 70.50** {8.81} 24.10** {3.86} 79.93** {8.04} 27.96** {2.66} 52.84** {9.59}
4229 <11.99> [0.00] 4229 <11.21> [4.40] 1539 <12.65> [0.01] 1539 <4.70> [4.42] 2690 <11.56> [0.00] 2690 <13.38> [4.40]
T-test of -2.38 0.63 0.12 3.40 -2.02 -0.86
different strategy 3.53** 0.30 14.97**
profit <6.81> <9.50> <12.17> <8.66> <6.07> <9.55>
Panel C: Non-members cost
-12.77** -9.02** -3.30**
Total 7.56 170.73 28.59 311.50 13.70 168.05 22.27 65.74 7.13 170.73 29.04 311.50
42.32** {3.31} 149.21** {24.07} 15.37** {8.43} 34.55** {17.00} 39.79** {3.24} 146.25** {24.07}
5432 <13.17> [0.00] 5432 <14.12> [11.54] 361 <16.93> [0.04] 361 <12.25> [11.54] 5071 <12.75> [0.00] 5071 <14.14> [11.54]
Long-futures strategy 6.84 170.73 29.12 311.50 13.73 168.05 24.20 65.74 6.46 170.73 29.39 311.50 39.14** {3.19} 151.55** {24.07} 12.84** {8.44} 28.86** {17.74} 37.34** {3.01} 149.48** {24.07}
4852 <12.17> [0.00] 4852 <13.38> [11.54] 256 <17.11> [0.04] 256 <13.42> [11.54] 4596 <11.72> [0.00] 4596 <13.33> [11.54]
Short-futures strategy 13.59 157.90 24.16 258.99 13.62 103.74 17.56 48.90 13.59 157.90 25.62 258.99 17.64** {6.77} 31.20** {17.14} 8.43** {8.37} 26.48** {16.07} 15.60** {6.30} 27.82** {18.34}
580 <18.56> [0.01] 580 <18.65> [11.74] 105 <16.56> [0.09] 105 <6.80> [11.74] 475 <18.99> [0.01] 475 <20.07> [11.86]
T-test of -6.75 4.95 0.11 6.64 -7.13 3.77
different strategy 6.20** 0.05 6.21** 4.00**
profit <13.01> <14.04> <16.95> <11.88> <12.58> <14.10>
-8.55** -8.03**