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

Abstract

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

Are the KOSPI 200 implied volatilities useful in value-at-risk models?

“…One possible explanation for our result is as follows. Many uninformed and speculative individual investors in the KOSPI 200 options market trade based on noise (Ahn, Kang, and Ryu, 2008Ryu, , 2010Kim and Ryu, 2012;Ryu, 2015), rather than based on information shocks. The uninformed traders in the KOSPI 200 options market, who account for a large proportion of domestic individual investors, make noise in the VKOSPI.…”

“…6 This is a relatively long period considering the 4 The simultaneous trading of the professional traders in Korea's index derivatives markets strengthens the market linkage among these index derivatives markets (Ryu, 2011(Ryu, , 2015. For the traders, the KOSPI 200 futures can be used as the underlying asset of the KOSPI 200 options.…”

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

“…The active participation of individual investors implies that the dynamics of option prices and _________________________ 2 The microstructure of the KOSPI 200 options market is well documented in Ahn et al (2008Ahn et al ( , 2010, Chae andLee (2011), Eom andHahn (2005), Kim and Ryu (2012), and Ryu (2011Ryu ( , 2015. the derived implied volatility are more likely to be affected by market sentiment and behavioral factors, underscoring the importance of the VKOSPI as a fear gauge measure.…”

Weather and stock market volatility: the case of a leading emerging market

“…2 For details on the VKOSPI and the KOSPI200 options market, refer to Kim and Ryu (2012) and Ryu (2012Ryu ( , 2015. 3 W it also includes absolute deseasonalized values for the variables or extreme weather condition dummies.…”