Is the KOSPI 200 Options Market Efficient? Parametric and Nonparametric Tests of the Martingale Restriction

Guo, Biao; Han, Qian; Ryu, Doojin

doi:10.1002/fut.21563

Cited by 31 publications

(9 citation statements)

References 24 publications

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“…Refer to the official website of the Futures Industry Association ( https://fia.org). The top‐tier position and importance of the KOSPI 200 options market and the applications of the options product are well‐documented in prior studies (Guo, Han, & Ryu, ; Lee & Ryu, ; Lee, Kang, Ryu, ; Ryu, Kang, & Suh, ).…”

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confidence: 72%

Tests on the Monotonicity Properties of KOSPI 200 Options Prices

Sim

Ryu

Yang

2015

Journal of Futures Markets

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This study demonstrates that the basic properties predicted by one-dimensional diffusion option pricing models are often violated, even in a highly liquid and leading options market. We analyze a high-quality intraday dataset of KOSPI 200 index options, one of the most actively traded options markets in the world, and find that option prices often do not monotonically correlate with underlying prices. We also empirically show that option prices often do not change, despite changes in underlying prices, when options are heavily traded by individual investors, who are normally noisy and uninformed. Our evidence is partially consistent with the implications of demand-based option pricing models, which predict that investor demand can significantly influence option prices in the presence of limits to arbitrage.

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confidence: 72%

Tests on the Monotonicity Properties of KOSPI 200 Options Prices

Sim

Ryu

Yang

2015

Journal of Futures Markets

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“…KOSPI 200 futures and KOSPI 200 options have been traded since 1996 and 1997, respectively. At the turn of the new millennium, the combined trading volume of KOSPI 200 futures and options increased sharply and this market has since maintained its position as the single most active derivatives market in the world (Guo, Han, & Ryu, 2013;Han, Guo, Ryu, & Webb, 2012;Hwang, Kang, & Ryu, 2010;Lee & Ryu, 2013;Ryu, 2012c;Ryu, Kang, & Suh, 2015). Table I ranks the top ten futures and options exchanges from around the world based on the combined trading volume of futures and options.…”

Section: Kospi 200 Futures and Options Marketmentioning

confidence: 99%

The Information Content of Trades: An Analysis of KOSPI 200 Index Derivatives

Ryu

2013

Journal of Futures Markets

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This study examines and compares the information content of futures and options trades by analyzing the transaction dataset of derivatives underlying the KOSPI 200 index. This dataset contains detailed information about investor types and trade directions. Previous market microstructure studies of Korea's index derivatives market (i.e., KOSPI 200 futures and options market) may contain model biases and microstructure errors because they depend on structural models and/or they focus on infinitesimal price changes between consecutive trades. In an effort to improve upon previous works, we use the simple regression approach described by Schlag and Stoll (2005, Price impacts of options volume. Journal of Financial Markets, 8, 69–87) and examine the information content of trades by tracing the price impacts of the trades over successive intervals of time. We find that a significant proportion of the price impact attributed to futures trades is permanent and that the price discovery effect is larger in the futures market than in the options market. Institutional futures trades are generally more informative than individual trades, and trades made by foreign institutions have the greatest permanent price impact. Examination of the intertemporal relationship between futures and options trades also indicates that the futures trades generally lead the options trades. Overall our results suggest that futures trades contribute more to price discovery than do options trades and that futures trades made by foreign institutions are most informed while those of domestic individuals are least informed. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 35:201–221, 2015

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“…This is surprising considering the importance of the Korean financial market as a leading emerging market and the KOSPI 200 options market as a worldwide options market. 1 It is also well known that the latter is one of the most liquid and influential derivatives markets in the world (Ahn et al, 2008(Ahn et al, , 2010Guo et al, 2013;Ryu et al, 2015).…”

Section: Introductionmentioning

confidence: 99%

Effects of the US Stock Market Return and Volatility on the VKOSPI

2015

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The KOSPI (Korea Composite Stock Price Index) 200 options are one of the most actively traded derivatives in the world. This paper empirically examines (a) the statistical properties of the Korea's representative implied volatility index (VKOSPI) derived from the KOSPI 200 options and (b) the macroeconomic and financial variables that can predict the implied volatility process of the index, using augmented heterogeneous autoregressive (HAR) models with exogenous covariates. The results suggest that the elaborate HAR framework is proficient at describing the dynamics of the VKOSPI and that some domestic macroeconomic variables explain the VKOSPI. More importantly, we find that the stock market return and implied volatility index of the US market (i.e., the S&P 500 spot return and the VIX from the S&P 500 options) play a key role in predicting the level of the VKOSPI and explaining its dynamics, and their explanatory power dominates that of domestic macro-finance variables. Further, while the domestic stock market return does not predict the VKOSPI, the US stock market return does so rather well. When two global factors, both the US stock market return and the US implied volatility index, are incorporated into the HAR framework, the model exhibits the best performance in terms of both in-sample fitting and out-of-sample forecasting ability. JEL C22 C50 G14 G15

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Is the KOSPI 200 Options Market Efficient? Parametric and Nonparametric Tests of the Martingale Restriction

Cited by 31 publications

References 24 publications

Tests on the Monotonicity Properties of KOSPI 200 Options Prices

Tests on the Monotonicity Properties of KOSPI 200 Options Prices

The Information Content of Trades: An Analysis of KOSPI 200 Index Derivatives

Effects of the US Stock Market Return and Volatility on the VKOSPI

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