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Price Discovery and Foreign Participation in Korea's Government Bond Cash and Futures Markets

Author

Listed:
  • Jaehun CHOI

    (The Bank of Korea)

  • Hosung LIM

    (The Bank of Korea)

  • Rogelio Jr. MERCADO

    (Trinity College Dublin)

  • Cyn-Young PARK

    (Asian Development Bank)

Abstract
This paper examines the impact of foreign participation in Korean Treasury Bond (KTB) futures and its role in price discovery, using daily transactions data from the over-the-counter market and from the Korea Exchange for the futures. Our analysis suggests that foreign trading in the KTB futures market leads the price discovery process for the underlying bonds. Empirical results show that foreigners' daily net long positions in the futures market exert significant influence in KTB and KTB futures prices. We also find that it is the unexpected component of foreign investors' net long futures positions that explains a significant share of the pricing effects, suggesting that how foreign trading responds to news carries additional information content.

Suggested Citation

  • Jaehun CHOI & Hosung LIM & Rogelio Jr. MERCADO & Cyn-Young PARK, 2015. "Price Discovery and Foreign Participation in Korea's Government Bond Cash and Futures Markets," Working Papers 2015-8, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1508
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    References listed on IDEAS

    as
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    Cited by:

    1. Jakree Koosakul, 2016. "Daily Movements in the Thai Yield Curve: Fundamental and Non-Fundamental Drivers," PIER Discussion Papers 30, Puey Ungphakorn Institute for Economic Research.
    2. Huo, Rui & Ahmed, Abdullahi D., 2018. "Relationships between Chinese stock market and its index futures market: Evaluating the impact of QFII scheme," Research in International Business and Finance, Elsevier, vol. 44(C), pages 135-152.
    3. Jakree Koosakul, 2016. "Daily Movements in the Thai Yield Curve: Fundamental and Non-Fundamental Drivers," PIER Discussion Papers 30., Puey Ungphakorn Institute for Economic Research, revised Jun 2016.

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    More about this item

    Keywords

    price discovery; emerging market; government bond; foreign participation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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