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Empirical Evidence on Put-Call Parity in Australia: A Reconciliation and Further Evidence
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R.L. Brown and S.A. Easton
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Abstract
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The results of the put-call parity studies by Loudon (1988) and Taylor (1990) are in direct conflict despite the authors reporting the use of virtually identical models and methods. Employing an improved version of Taylor's data collection procedures, we test the parity theorem in the period studied by Loudon. The results are similar to those of Loudon. As a result, we run separate checks of Taylor's data and analysis. The check of the data reveals that over sixty per cent of Taylor's observations are invalid. The check of the analysis reveals that the lower boundary of the put-call parity relation was incorrectly calculated by Taylor. Correcting this error results in fundamentally different conclusions.
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Keywords
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PUT-CALL PARITY; DATA COLLECTION PROCEDURES.
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Contact Details
R.L. Brown
The Department of Accounting and Finance
Monash University
Clayton VIC 3168
S.A. Easton
The Department of Accounting and Finance
Monash University
Clayton VIC 3068
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We are grateful for the helpful comments made by Tim Brailsford, Barry Oliver, Graham Peirson, Alan Ramsay and Garry Twite and anonyumous referees of this journal. We have also benefited from comments made at a seminar of the Department of Accounting and Finance, Monash University, Clayton. We are also grateful for financial support provided by the Faculty of Economics Commerce and Management, Monash University. We are particularly indebted to Stephen Taylor who provided us with his data and made comments on earlier drafts.
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