We examine the effect of the introduction of index futures trading in the Korean
markets on spot price volatility and market efficiency of the underlying KOSPI 200
stocks, relative to the carefully-matched non-KOSPI 200 stocks. Employing market
data during the period of January 1990-December 1998, we find that the introdcution
of KOSPI 200 index futures trading is associated with greater market efficiency but,
at the same time, greater spot price volatility in the underlying stock market. We
also find that KOSPI 200 stocks experience lower spot price volatility and higher
trading efficiency than non-KOSPI 200 stocks after the introduction of futures
trading. The trading efficiency gap between the two groups of stocks, however,
lessens over time and is reversed following the addition of options trading.
Overall, our results suggest that while futures trading in Korea increases spot
price volatility and market efficiency, there exists volatility spillover to stocks
against which futures are not traded. We provide several factors unique in the
Korean markets including circuit breakers, sidercar system, restrictions on foreign
ownership, and inactive program trading as potential factors to explain some of our
puzzling evidence.
게시판
공지사항
[2002년 제 2차] Futures Trading, Spot Market Volatility, and Market
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2003-07-12
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