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Grinblatt and Han (2005) argued that unrealized capital gains and expected returns are positively related in the U.S. stock markets. This study investigates the possibility of developing investment strategies for stock index futures using the positive relation. Probing the trading data of futures on KOSPI200 during the period of 1995~2013, several interesting results are obtained. First, the strategy of building long positions when the unrealized capital gain is greater than zero produces positive profit which is statistically significant. Second, the profitability of this strategy during December is significantly positive while the profitability during January is insignificant. Third, the strategy generates positive profit during the second half year while the profitability of the first half year is insignificant. These results imply that it is possible to develop investment strategy by extracting some information from the unrealized capital gains.

This paper examines short-selling activity focusing on its behavior during non-normal times of occasional excesses in the Korean stock market. Using the methodology explained by Brunnermeier and Pederson (2005) and Shkilko et al. (2009; 2012), we first examine whether short-selling is predatory on those event days of large price reversals. Overall there is little predatory abnormal short-selling in the pre-rebound phase and we can observe active contrarian short-selling in the post-rebound phase. When we compared aggressiveness between short-selling and non-short-selling using order imbalance variables, we found that non-short selling is much more aggressive than short selling in the Korean stock market. From the observation of market liquidity measured by quoted spreads, we could find that market liquidity is somewhat limited during price decline stages while it slightly improves during price reversal phases. Also, using dynamic panel model, we test the influences of those variables on stock price changes and disaggregate the compound effect of short-selling reflected in trading volume itself into differentiated ones not only through pure trading channel but also through other complicated channels such as market sentiment change. Main findings from the regression results are as follows : In the Korean stock market, short sellers seem to behave as a contrarian trader rather than a momentum trader; seller-initiated aggressive trading, whether it is by short-selling or non-short-selling, leads to negative order imbalance and price decline; market liquidity is limited by short-selling and further pressure on price decline is added in the pre-rebound stage; and stock prices are affected not only through pure selling (buying) channel but also through other channels in the Korean stock market.

This study investigates the impact of program trading on the market volatility by separating the volatility into long-run and short-run components using VA-CEGARCH model. This approach allows us to observe the two channels through which the program trading affects the market volatility. We have following results. Program trading and non-program trading both have no impact on the long-run component but do increase short-run component. In case of short-run component‘ program trading has a larger impact compared to non-program trading. Secondly, in both daily and intra-day analysis, arbitrage program trading is found to have a larger impact on short-run components than non-arbitrage program trading.

Thirdly, ARCH effects are found in short-run components of daily analysis and long-run components of intra-day analysis. And the volatility’s asymmetric responses to good or bad news are introduced through long-run components. What is noteworthy is the fact that non-arbitrage program trading is actually found to reduce short-run volatility in the intra-day analysis.

Which means that non-arbitrage program trading, such as hedging transactions, helps promote intra-day market stability. Our findings mean that the short-run component is the main channel by which program trading produce unnecessary market volatility.

This study investigates whether or not the short-selling behavioral bias of investors exists in the Korean stock market. We analyze how the weather bias related to climate factors affects short-selling traders, commonly known as informed traders. To do this we estimated the dynamic panel model using daily data and examined the relationship between market variables such as stock returns, short sale volume, non-short sale volume, total trading volume, and weather variables consisting of cloud cover and sunshine hours. This study shows that not only returns but also short selling volumes are all affected by weather factors. In the case of stock returns, both cloud cover and sunshine hours have a statistically significant impact on returns, and its sign is estimated to be inversely proportional to both factors. That is, we find that returns decrease on cloud days, but increase on sunny days. In terms of the trading behavior of the market participants, it is interesting to note that the trading volume decreases when the weather is blunted, But did not show any statistical significances. On the other hand, both the original and the seasonally adjusted weather factors of cloud cover have a statistically significant positive effect on the short-sale volume. This means that as the weather worsens, short-selling traders submit more orders, indicating the presence of behavioral bias.