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Price discovery and foreign participation in the Republic of Korea’s government bond futures and cash markets

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Frame of Image ADB do not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, BOK and ADB do not intend to make any judgments as to the legal or other status of any territory or area.
**** Senior Economist, The Bank of Korea (cjh4423@bok.or.kr) **** Economist, The Bank of Korea (hosung@bok.or.kr) *** Graduate Student/Research Associate, Trinity College Dublin (mercador@tcd.ie) **** Director, Asian Development Bank (cypark@adb.org) We are grateful for the helpful comments and suggestions from Woon Gyu Choi, Jinho Huh, Jin-Su Park, Hyun-Jeong Kim, Jong Ku Kang, Inseon Hwang, Sungjin Park, Choong Won Park, Eun Yeong Song. We also wish to thank the seminar participants at the Bank of Korea for the mid-term review of this study in November 2014.
Contents
Ⅰ. Introduction ··················································································· 1
Ⅱ. Literature Review ······································································· 4 Ⅲ. Dataset, Descriptive Statistics, and Decomposition of Net Purchases and Positions ·············································· 7
1. Dataset ··············································································································· 7 2. Descriptive Statistics ····························································


Full Text
Title Price discovery and foreign participation in the Republic of Korea’s government bond futures and cash markets
Similar Titles
Material Type Reports
Author(English)

Choi, Jaehun; Lim, Hosung; Mercado, Rogelio Jr.; Park, Cyn-Young

Publisher

Seoul:The Bank of Korea

Date 2015
Series Title; No BOK Working Paper
Pages 42
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding The Bank of Korea; KDI School

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.