Empirical Results on market productivity and its analysis
During the past due 1990s, right now there existed a lot of market frictions and tendency unique in the Korean futures and inventory markets that might hinder a quick adjustment of market rates to info. In order for futures trading to effectively reduce market frictions in the currency markets, it is necessary that information produced in the options contracts market be transmitted towards the stock market freely and quickly. When futures trading present in Korea in 1996, several market regulations which includes daily price change limit such as "circuit breakers" and "sidecar system, " limitations on overseas ownership of Korean stocks, and sedentary program trading made it almost impossible to accommodement between the futures market and the stock market.
Initially, circuit breakers were designed to reduce market volatility inside the short run, and adopted in both Korean language futures and stock marketplaces. Since the intro of futures trading around the KRX in 1996, routine breakers had been operated just once in 1996 but 49 times every single in 97 (during the final two months of November and December) and 1998. Consequently, circuit breakers were put in operation generally after the IMF financial crisis in October 97. The Period IV(post-options trading period) overlaps into a large extent with all the IMF financial crisis period. Hence, circuit breakers appear to have already been effective in reducing substantive market unpredictability resulting from the financial crisis during Period IV. On the other hand, since circuit breakers halt the regular trading process, it properly restricts the availability and easy flow details from options contracts market to stock market. Because of this, circuit breakers seem to include restricted the trading efficiency of...
... ormation could become more important to buyers who intend to price non-KOSPI 200 shares than to prospects who want to price even more recognized KOSPI 200 stocks and options. If so , the futures trading could generate more trading in non-KOSPI 200 stocks, ultimately causing a relatively huge increase in both equally spot price volatility and trading effectiveness of non-KOSPI 200 stocks and options, compared to KOSPI 200 stocks and shares.
Jae Ha Lee, Feb . 2002, Index Arbitrage with the KOSPI 2 hundred Future
Leading Futures Marketplace KRX, Korea Exchange
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