An Empirical Investigation of the Lead-Lag Relations of Returns and Volatilities among the KOSPI200 Spot, Futures and Options Markets and their Explanations

Abstract

This article empirically examines the lead-lag relations among the KOSPI200 spot market, the KOSPI200 futures market, and the KOSPI200 options market, and provides some explanations for the observed lead-lag relations. In general, the KOSPI200 futures and options markets lead the KOSPI200 spot market by up to 10 minutes in terms of returns and by 5 minutes in terms of volatilities, even after purging the infrequent trading effect as well as the bid-ask spread effect. The KOSPI200 options market leads and lags the KOSPI200 futures market by 5 minutes only in terms of returns. The observed lead-lag relations seem to be caused by the difference in transaction costs of the three markets. JEL Classification: G13; G14

The information content of net buying pressure: Evidence from the KOSPI 200 index option market

“…The information of the news is spread through the net buying pressure of call (put) options or the net selling pressure of put (call) options before it arrives at the stock market, causing the price or the implied volatility of the call (put) options to increase. Combined with the evidence documented by Kang, Lee, and Lee, 2006 in which the KOSPI 200 options return is found to lead the KOSPI 200 stock index return by up to 10 min, the direction-learning hypothesis can account for the positive a 3 s and the negative a 4 s.…”

“…For example, Amin and Lee (1997), Easely, O'Hara, and Srinivas (1998), Chakravarty, Gluen, and Mayhew (2004), Stoll and Schlag (2005), Cao, Chen, and Griffin (2005), Pan and Poteshman (2006), and Kang, Lee, and Lee (2006) provide evidence that information flows from option markets to cash markets, while Bhattacharya (1987), Stoll and Whaley (1990), Booth, So, and Tse (1999), Chiang and Fung (2001), and Chan, Chung, and Fung (2002) see no evidence of this. This paper revisits the issue because we have access to a new dataset that promises new insights.…”

Examining the interrelation dynamics between option and stock markets using the Markov-switching vector error correction model

“…In particular, the θ q1 estimate is significantly negative and the θ p1 is significantly positive at the 1% level, as hypothesized by this study. 30 This result indicates that the lagged OBS-IMP deviations function as an information variable in the volatility-switching process.…”

“…Please refer to Li [37] for the related discussions. 30. In specific, the θ q1 and θ p1 estimates are −2.0455 (t-statistics = 4.6937) and 1.3594 (t-statistics = 2.940), respectively.…”

Price discovery in Indian stock index futures market: new evidence based on intraday data

“…They compare spot and futures prices in both markets by employing IS and CS methodology on five minute price data of six months and conclude that futures leads spot. Moreover, Kang et al (2006) analyse KOSPI 200 of Korea with 5 minute prices for 15 month duration by applying VAR in returns and find the leading role of futures. Similarly, there are several studies in different countries which contend that futures leads spot e.g., Ghosh (1993), Kawaller et al (1987), and Stoll and Whaley (1990) for US market, Iihara et al (1996) and Tse (1995) for Japanese market, Shyy et al (1996) for France, Zhong et al (2004) for Mexico, Hou and Li (2012) for China, and Brooks et al (2001) for UK.…”