The impact of stock index futures on the Korean stock market
Material Source: http://web./ehost/pdfviewer/pdfviewer?hid=15&sid=6d323da0-58fb-47c7-8da9-81ed87%40sessionmgr14&vid=8 Author: HYUN-JUNG RYOO and GRAHAM SMITH
This article investigates the impact on the spot market of trading in KOSPI200 futures. Empirical results show that futures’ trading increases the speed at which information is impounded into spot market prices, reduces the persistence of information and increases spot market volatility. The spot and futures prices are co integrated and there is bidirectional causality between the two markets. The lead-lag relation is asymmetric with weaker evidence that the spot index leads futures and stronger evidence that the stock index futures market leads the spot market. Trading in these stock index futures has grown remarkably.
Stock index futures are perceived as one of the most essful financial innovations of the 1980s. Trading in them was first introduced in February 1982 by the Kansas City Board of Trade in the USA and other developed markets soon followed. In contrast, much of the futures trading in emerging markets are a relatively recent phenomenon. Although Korea is one of the fastest growing emerging markets, it was not until 3 May 1996 that a futures contract based on the Korea Stock Price Index 200 (KOSPI200) was introduced on the Korea Stock Exc