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Open Access
Article
Publication date: 28 June 2021

Mincheol Woo and Meong Ae Kim

The National Pension Service (NPS) of Korea is one of the largest institutional investors in the world and it has been known as the market stabilizer in the Korean stock market

Abstract

The National Pension Service (NPS) of Korea is one of the largest institutional investors in the world and it has been known as the market stabilizer in the Korean stock market. Nevertheless, it is hard to find the research about the impact of the NPS on the futures market. We investigated the effect of the NPS’s trading KOSPI200 futures on the returns, the liquidity and the volatility of the market using the recent ten years’ transaction data. The main findings are as follows. First, the NPS’s net investment flow (NIF) in the KOSPI200 futures market shows the predictability about the returns of both KOSPI200 futures and KOSPI200 spot index. Second, the NPS’s NIF in the KOSPI200 futures market improves the liquidity of the KOSPI market, where the transactions involved in both the spot market and the futures market occur. Third, the NPS’s NIF in the KOSPI200 futures market reduces the volatility of both the KOSPI200 futures market and the KOSPI market. Unlike the prior studies showing that our futures market tends to increase the volatility of the stock market through the volatility transfer, our finding suggests that the NPS’s trading KOSPI200 futures contributes to decreasing the volatility in both markets. To the best of the authors’ knowledge, this paper is the first study that investigates the impact of the NPS’s trading KOSPI200 futures on the KOSPI200 futures market and the stock market. It shows that the NPS plays a role of the market stabilizer in the futures market. In addition, the NPS’s trading KOSPI200 futures also affects the KOSPI stock market, stabilizing it in terms of both the liquidity and the volatility.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 29 no. 3
Type: Research Article
ISSN: 1229-988X

Keywords

Open Access
Article
Publication date: 4 June 2021

Meong Ae Kim and Mincheol Woo

It is known that the National Pension Service (NPS) of Korea contributes to the market stability because it tends to pursue the negative feedback trading strategy in the Korean…

Abstract

It is known that the National Pension Service (NPS) of Korea contributes to the market stability because it tends to pursue the negative feedback trading strategy in the Korean stock market. While many studies deal with institutional investors’ trading in the financial derivatives market, the NPS’s trading in the derivatives market is rarely studied. Using the NPS’s trading data for the period from January 2010 to March, 2020, the authors examine the transactions of the NPS in the KOSPI200 futures market. We find that the NPS’s net investment flow (NIF) in KOSPI200 futures is negatively associated with the past returns of KOSPI200 futures and the KOPI200 index. However, we also find that the NPS’s NIF of KOSPI200 futures is positively associated with its NIF in KOSPI200 stocks. Along with the legal restriction on the NPS’s trading in the derivatives market, the result suggests that the NPS uses KOSPI200 futures to deviate the problems related to non-synchronous trading in the spot market. To the best of our knowledge, this paper is the first study of the NPS’s transactions of KOSPI200 futures. The paper suggests that the NPS does not trade KOSPI200 futures for hedging or arbitrage profit but for complementing its transactions in the spot market of KOSPI200 stocks.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 29 no. 2
Type: Research Article
ISSN: 1229-988X

Keywords

Open Access
Article
Publication date: 31 August 2009

Seok-Kyu Kang

This paper examines the price discovery process among the Korea stock index markets using the vector error correction model (VECM) and the multivariate generalized auto regressive…

39

Abstract

This paper examines the price discovery process among the Korea stock index markets using the vector error correction model (VECM) and the multivariate generalized auto regressive conditional heteroskedasticity (M-GARCH) model. The minute-by-minute price series of the KOSPI200 index, KOSPI200 futures, and KODEX200 are cointegrated.

The empirical results are summarized as follows: First, VECM estimation results indicate that when the cointegrating relationship is perturbed by the arrival of ntis, the KODEX200(ETF) does not adjusted to restore equilibrium. This is the task of the KOSPI200 futures and spot. These two index securities use the KODEX200 to represent the ntioequilibrium price, with the KOSPI200 futures responding faster than the KOSPI200 spot. When the cointegrating relationship betweeiesOSPI200 spot and futues is perturbed by the arrival of ntis, the KOSPI200 spot does adjusted to restore equilibrium. Next, the results from the multivariate GARCH modes indicate that the volatilities of esOSPI200 spot and futures markets suggest unidirectiona1volatility spillover from KOSPI200 futures to KOSPI200 spot. KODEX200(ETF) volatilities spill over bothesOSPI200 spot and futures markets. and this happen in the reverse direction with a strong effect from the KODEX200 to KOSP200 futures and spot.

The overall findings indicate that the KODEX200(ETF) market dominates KOSPI200 futures and spot in the price discovery process. The regulation of Instutional traders on trading on futures markets explains its superior price discovery function.

Details

Journal of Derivatives and Quantitative Studies, vol. 17 no. 3
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 30 November 2003

Bae Gi Hong and Su Jae Jang

This paper examines the information efficiency of KOSDAQ50 and KOSPI200 index futures markets. The study analyzes and compares both markets in three respects : 1) price discovery…

13

Abstract

This paper examines the information efficiency of KOSDAQ50 and KOSPI200 index futures markets. The study analyzes and compares both markets in three respects : 1) price discovery (lead-lag relationship between spot and futures markets.), 2) volatility-volume relationship, and 3) mispricings between spot and futures prices. The first, analysis shows the in the KOSPI200 market, futures price leads spot price. While spot price leads futures price in the KOSDAQ50 market. The second analysis shows that the volatility-volume relation is positive in the KOSPI200 futures market, supporting the hypothesis of mixture of distribution. In contrast, there is little relation between volume and volatility in the KOSDAQ50 futures market. This result casts doubt that the futures market price reflects information. The last analysis shows that the magnitude of mispricing becomes smaller with more volume in the KOSPI200 futures market, while it becomes larger with more volume in the KOSDAQ50 futures market. The overall results imply that the KOSDAQ50 futures market is less informationally efficient that the KOSPI200 market. The inefficiency appears due to the lack of institutional investor participation, especially securities firms, in making up the market.

Details

Journal of Derivatives and Quantitative Studies, vol. 11 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 30 November 2014

Seok-Kyu Kang, Youngtae Byun and Jonghae Park

In this study we compared the effectiveness of different ETFs. For this purpose, we analyzed the volatility spillover effect (process) among KOSPI200, KOSPI200 futures and KOSPI200

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Abstract

In this study we compared the effectiveness of different ETFs. For this purpose, we analyzed the volatility spillover effect (process) among KOSPI200, KOSPI200 futures and KOSPI200 ETFs such as KODEX200, KOSEF200, KINDEX200, TIGER200 using multi-variate GARCH model. The sample was generated from high frequency data set over the period from 05/24/2009 to 12/29/2011 (669 days). The volatility spillover effect was examined at 1, 5, 10, 30 minute' intervals for each market and the main results are as follows;

First, KODEX200 has the highest correlations with KOSPI200 and KOSPI200 futures in four ETFs.

Second, all ETFs have a cointegrated relationship with its underlying asset KOSPI200 as KOSPI200 and KOSPI200 futures do.

Third, in the daily data the volatility spillover among ETFs, KOPSI200 and KOSPI200 futures was investigated in part but it was not consistent.

The fourth, according to the result derived from high-frequency data analysis the volatility spillover effect from KODEX200 to KOSPI200 (KOSPI200 futures) is bigger than that from KOSPI200 (KOSPI200 futures) to KODEX200 while other ETFs are not.

The overall results indicate that KODEX200 which is the biggest ETF in volume performs very important roles in finding the price of underlying asset and further researches can be expected.

Details

Journal of Derivatives and Quantitative Studies, vol. 22 no. 4
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 30 November 2008

Jae Ha Lee and Sang Soo Kwon

In the KOSPI2oo futures and option markets. additional fifteen minutes (15 : 00∼15 개5) after the underlying stock market close are given tor the adjustments of the futures and…

12

Abstract

In the KOSPI2oo futures and option markets. additional fifteen minutes (15 : 00∼15 개5) after the underlying stock market close are given tor the adjustments of the futures and option positions. During the first five minutes. 15: 00∼15 : 05. a continuous auction trading is made. while the trading at a single clearing price is made for the remaining ten minutes. 15: 05∼15: 15.

Previous studies focused on the synchronous trading in terms of transaction time in the analysis of the lead-lag relationship. truncating the futures and option data during 15 : 00∼15 : 15. In this article. we explore how the KOSPI2oo futures and option returns for the extra fifteen minutes impact the next day's KOSPI200 cash returns, We also examine the lead-lag relationship during the reggular trading hours (9 : 00∼15 : 00) and the impact of the cash returns during 14 : 20∼15 : 00 on futures and option returns during 15 : 00∼15: 15. Our main findings are summarized as follows.

First. the KOSPI200 futures and option returns during 15 : 00∼15 : 15 lead the close-to-open KOSPI200 cash return, even though the trading volume and return volatility during 15: 00∼15: 15 are lower relative to the regular stock market session (9 : 00∼15: 00). The impact of the futures and option returns on the cash return lasts hlK) minutes and one minute‘ repectively. after the next day open. Second. the option return during the continuous auction trading session (15 : 00∼ 15 : 05) leads the close-to-open cash return. while the futures return of trading at a single clearing price during 15 : 05∼15 : 10 impacts the close-to-open cash return. Third, we found that the lead-lag relationships among the KOSPI200 futures, option, and cash returns are not constant during the reg비ar stock market session‘ In partieular. the impact of the KOSPI200 cash ret un during 14 : 40∼15 : 00 on the futures and option retuns for the 15 : 00∼15: 15 Interval is much stronger. compared with other time zones.

Finally. the KOSPI200 cash return during the last ten minutes of trading at a Single clearing price (14 : 50∼15 : 00). significantly impacts the option return during 15: 00∼15: 05. while there is no impact on the futures return (15 : 00∼15: 15).

Details

Journal of Derivatives and Quantitative Studies, vol. 16 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 31 May 2007

Seok Kyu Kang

This study is to examine the unblasedness hypothesis and hedging effectiveness in KOSPI20() futures market. The unbiasedness and efficiency hypothesis is carried out using a…

15

Abstract

This study is to examine the unblasedness hypothesis and hedging effectiveness in KOSPI20() futures market. The unbiasedness and efficiency hypothesis is carried out using a cointegration methodology. And hedging effectiveness is measured by comparing hedging performance of the naive hedge model, OLS hedge model. and constant correlation bivariate GARCH (1. 1) hedge model based on rolling windows. The sample period covers from May. 3. 1996 to December. 8, 2005.

The empirical results are summarized as follows: First, there exists the cOintegrating relationship between realized spot prices and futures prices of the 10 day. 22 day. 44 day. and 59 day prior to maturity. Second. futures prices of backward the 10 day. 22 day. 44 day from maturity provide unbiased forecasts of the realized spot prices. The KOSPI200 futures price is likely to predict accurately future KOSPI200 spot prices without the trader having to pay a risk premium for the privilege of trading the contract. Third. for shorter maturity. the futures price appears to be the best forecaster of spot price. Forth, bivariate GARCH hedging effectiveness outperforms the naive and OLS hedging effectiveness.

The implications of these findings show that KOSPI200 futures market behaves as unbiased predictor of future spot price and risk management instrument of KOSPI200 spot portfolio.

Details

Journal of Derivatives and Quantitative Studies, vol. 15 no. 1
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 31 May 2002

Se Kyung Oh

This paper tries to find the information flow between KOSPI200 Index and KOSPI200 Futures more accurately by considering two models. First, three-stage least-squares regression is…

15

Abstract

This paper tries to find the information flow between KOSPI200 Index and KOSPI200 Futures more accurately by considering two models. First, three-stage least-squares regression is used to estimate lead and lag relationships based on the representation of a simultaneous-equations model because futures and cash returns may affect each other contemporaneously. Secondly, a bivariate GARCH model is used because the lead-lag relationships between the two markets should consider not only return itself but also return volatility. The results from the first regression suggest that KOSPI200 futures returns and the index are simultaneously related and that the lead from futures to cash returns extends for about 40 minutes and the lead from cash to futures returns extends for about 30 minutes, which means the lead-lag relationship between the two markets are not unidirectional. I find from the analysis of a bivariate GARCH model that the information flow between the two markets is rather symmetrical when the volatility relationships are also considered, although it seems non-symmetrical when the returns relationships alone are considered. I also find a much stronger dependence in both directions in the volatility of returns between the cash and futures markets than that observed in the returns alone. When I consider intraday volatility as well in the lead-lag relationship between the two markets, KOSPI200 futures markets strongly lead index markets but KOSPI index do not lead futures markets. Evidence also suggests strong intermarket dependences in the conditional volatilities and in the return shocks. So the results have implications for understanding the pattern of information flows between the two markets.

Details

Journal of Derivatives and Quantitative Studies, vol. 10 no. 1
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 30 November 2006

Woo–baik Lee

This paper estimates the contribution of KOSPI200 futures to spot price discovery based on methodology of ‘information share’, which is suggested by Hasbrouck (1995). Using the…

6

Abstract

This paper estimates the contribution of KOSPI200 futures to spot price discovery based on methodology of ‘information share’, which is suggested by Hasbrouck (1995). Using the intraday data covering sample period from year 1997 to 2003, I estimate information share with specification of Vector Error Correction Model. Main empirical findings are summarized as followings; First. estimate of information share is above 60 percent on average through-out the entire sample period. Second. the contribution of KOSPI200 futures to error correction increased during the recent year of sample period. showing that futures price have strong tendency to lead the spot price. Third. price discovery of KOSPI200 futures have significantly positive relationship with program trading volume and seems to increase under contango. These empirical findings explain the ‘market maturity effect’ that role of futures in spot price discovery enhances as cointegration between futures and spot prices strengthens and futures market countervails the arbitrage opportunity. In general. this paper presents that mature futures market Significantly contributes to spot market efficiency and price discovery process.

Details

Journal of Derivatives and Quantitative Studies, vol. 14 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 31 May 2015

Taewoo Daniel Kim and Kiyool Ohk

The study examines whether the trader’s order imbalance for KOSPI200 futures can explain their informativeness. I use daily positions of various types of futures market

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Abstract

The study examines whether the trader’s order imbalance for KOSPI200 futures can explain their informativeness. I use daily positions of various types of futures market participants such as foreign investors, institution investors, and individual investors to identify informed traders. The positions of foreign investors, institution investors and individual investors are correlated with returns in KOSPI200 futures markets, but there is some debate as the interpretation of such a relationship. I find that the foreign investors’ position is informative to investors, supporting the private information view. In terms of trader’s behavior, foreign traders follow contrarian strategies and trade with higher information than individual and institutional traders, who trade as momentum. Also, I considering regime switching effects in this frameworks. In threshold regression models, I found a different behavior during futures return expansions and contractions or volatility expansions and contractions.

Details

Journal of Derivatives and Quantitative Studies, vol. 23 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

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