Asymmetric Mispricing and Regime-dependent Dynamics in Futures and Options Markets

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We examine regime-dependent price dynamics and mispricing adjustments within the KOSPI200 spot, futures and options markets through an analysis of data from January 2000 to December 2014. Investors exploit mispricing between derivatives and spot markets only if mispricing is sufficiently large. The futures traders take long, rather than short, positions to adjust for mispricing. Mispricing between spot and options markets is adjusted by trading options and not by trading spots. We find the bidirectional information flows between spot and futures markets when the futures-implied index is sufficiently larger than the spot index. In contrast, no significant lead-lag relationship between spot and options markets exists. Significant asymmetric transaction costs exist in the spot market and this asymmetry has decreased over time
Publisher
WILEY-BLACKWELL
Issue Date
2016-03
Language
English
Article Type
Article
Keywords

STOCK INDEX FUTURES; TRANSACTION COSTS; NONLINEAR DYNAMICS; TRADE DIRECTION; PRICE IMPACT; FEAR GAUGE; ARBITRAGE; INFORMATION; RESTRICTIONS; VOLUME

Citation

ASIAN ECONOMIC JOURNAL, v.30, no.1, pp.47 - 65

ISSN
1351-3958
DOI
10.1111/asej.12084
URI
http://hdl.handle.net/10203/208764
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