Speed and trading behavior in an order-driven market

2021

Self Cite

We use a high‐quality microstructure data set of KOSPI 200 index options to examine the patterns of informed options trading around holidays, depending on options market characteristics. The information content of options trading increases around holidays, and this holiday effect is pronounced for out‐of‐the‐money calls and at‐the‐money puts. Informed large trades reinforce the holiday effects for out‐of‐the‐money call options. Foreign investors are generally informed, and their out‐of‐the‐money options trades are even more informed after holidays. Although domestic investors are less informed than their foreign competitors, their options trades seem to convey information both before and after holidays.

Section: Sample Datamentioning

confidence: 99%

Informed options trading around holidays

2021

Self Cite

“…Both domestic and foreign investors actively participate in the options market, attracted by its low transaction costs (e.g., no brokerage and exchange fees and low trading and capital gain taxes) and ample market liquidity (e.g., small bid‐ask spreads and great market depth). Professional investors can use KOSPI 200 options as an effective trading vehicle, because the market's small quoted spreads and sufficient depth can absorb the price impacts of large informed orders (Lee, Kang, & Ryu, 2015; Park & Ryu, 2019). Speculators, arbitragers, and hedgers can benefit from this abundant liquidity.…”

Section: Kospi 200 Options Marketmentioning

confidence: 99%

The impact of net buying pressure on index options prices

Yang

2020

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This study examines whether the demand for options, as measured by the net buying pressure of index options, explains the implied volatility structure created by options prices. We decompose the buying pressure into the direction‐motivated (i.e., delta‐informed) and the volatility‐motivated (i.e., vega‐informed) demand for options. After controlling for options traders' hedging demand, we find that both delta‐ and vega‐informed trading play significant roles in explaining changes in implied volatility. Foreign institutions are more directionally informed in index options trading than their domestic counterparts are. Domestic investors effectively implement volatility trading using put options.

“…We specifically measure the liquidity and investor activity proxies using the informative microstructure data set from the Korean equity index (KOSPI 200) futures market, which is fully order‐driven and highly liquid. This data set is used because it provides transaction‐level data with granular details such as the time stamp in milliseconds, buy‐sell indicator, and identifications of the taker (i.e., who is in the initiating position) and maker (i.e., who is in the initiated positions) of each transaction (Park & Ryu, 2019; Ryu, 2013; Webb et al, 2016). First, multiple microstructural liquidity proxies—which include the bid‐ask spread, inverse depth, and time between trades—are constructed using the high‐frequency data set where all transactions are recorded tick by tick and their execution time is accurately reported in milliseconds (Ryu, 2016).…”

Section: Introductionmentioning

confidence: 99%

Who pays the liquidity cost? Central bank announcements and adverse selection

Webb

2023

Self Cite

This study examines whether the composition of market participants contributes to shaping market liquidity around central bank announcements. By analyzing transaction‐level data from a stock index futures market, we find that the roles of foreign and domestic institutional investors in taking or providing liquidity, respectively, are switched following the news announcements. The participation of domestic (foreign) institutions is negatively (positively) associated with liquidity provision shortly after the announcements, whereas they provide (consume) liquidity in general. The change in domestic institutions' roles is attributed to their advantages in processing local news as it is pronounced when they actively participate. Domestic individuals remain largely noisy and unresponsive. Overall, the results support the existence of adverse selection costs in the order‐driven context and imply that institutional investors may trade with the wind when they have information superiority.