Essays on market microstructure and price adjustment processes

Abstract

This dissertation includes three essays on market microstructure and price adjustment processes. The first essay investigates how high frequency traders’ orders contribute to price discovery in the highly liquid KOSPI 200 futures market. Market orders contribute much more to price discovery than limit orders do, and high frequency traders’ contribution is comparable to the other traders’ despite much less message frequency. The second essay proposes a return-based measure to detect investor disagreement in intraday trading and finds that disagreement is positively associated with expected returns, return volatility, and trading volume in the KOSPI 200 futures market, which is highly liquid and free from short-sale constraints. The third essay finds that the first 10-minute options order imbalances significantly predict both the KOSPI 200 index and its futures returns over the remainder of the day and examines what affects and who contributes to this predictability.