This paper examines the impact of foreign participation in Korean Treasury Bond (KTB) futures and its role in price discovery, using daily transactions data from the over‐the‐counter market and from the Korea Exchange for the futures. Our analysis suggests that foreign trading in the KTB futures market leads the price discovery process for the underlying bonds. Empirical results show that foreigners’ daily net long positions in the futures market exert significant influence in KTB and KTB futures prices. We also find that it is the unexpected component of foreign investors’ net long futures positions that explains a significant share of the pricing effects. Our empirical results also suggest that information transmission between cash and futures markets has improved significantly in the crisis and post‐crisis period while local market participants have become better in extracting information content from market transactions. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:23–51, 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The authors are deeply indebted to Sungjin Park, Choong Won Park, and Eun Yeong Song for valuable research inputs and discussions during the course of the study. The authors also wish to thank the seminar participants at the Bank of Korea for the midterm review of this study in November 2014. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Bank of Korea and the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. When reporting or citing this paper, the authors' names should always be stated explicitly. Terms of use: Documents in ASIAN DEVELOPMENT BANKADB and the Bank of Korea do not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB and the Bank of Korea in preference to others of a similar nature that are not mentioned.By making any designation of or reference to a particular territory or geographic area, or by using the term "country" in this document, ADB and the Bank of Korea do not intend to make any judgments as to the legal or other status of any territory or area.This work is available under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 IGO license (CC BY-NC-ND 3.0 IGO) http://creativecommons.org/licenses/by-nc-nd/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of said license as well as the Terms of Use of the ADB Open Access Repository at openaccess.adb.org/termsofuse This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims arising as a result of your use of the material.Attribution-In acknowledging ADB and the Bank of Korea as the source, please be sure to include all of the following information: Author. Year of publication. Title of the material. © Asian Development Bank and the Bank of Korea. https://openaccess.adb.org. Available under a CC BY-NC-ND 3.0 IGO license.Please contact OARsupport@adb.org or publications@adb.org if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within ...