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Asymmetric Mispricing and Regime-dependent Dynamics in Futures and Options Markets

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  • Jaeram Lee
  • Doojin Ryu

Abstract

type="main"> We examine regime-dependent price dynamics and mispricing adjustments within the KOSPI200 spot, futures and options markets through an analysis of data from January 2000 to December 2014. Investors exploit mispricing between derivatives and spot markets only if mispricing is sufficiently large. The futures traders take long, rather than short, positions to adjust for mispricing. Mispricing between spot and options markets is adjusted by trading options and not by trading spots. We find the bidirectional information flows between spot and futures markets when the futures-implied index is sufficiently larger than the spot index. In contrast, no significant lead–lag relationship between spot and options markets exists. Significant asymmetric transaction costs exist in the spot market and this asymmetry has decreased over time.

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  • Jaeram Lee & Doojin Ryu, 2016. "Asymmetric Mispricing and Regime-dependent Dynamics in Futures and Options Markets," Asian Economic Journal, East Asian Economic Association, vol. 30(1), pages 47-65, March.
    • Handle: RePEc:bla:asiaec:v:30:y:2016:i:1:p:47-65
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    Cited by:

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    2. Webb, Robert I. & Ryu, Doojin & Ryu, Doowon & Han, Joongho, 2016. "The price impact of futures trades and their intraday seasonality," Emerging Markets Review, Elsevier, vol. 26(C), pages 80-98.
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    6. Doojin Ryu, 2017. "Comprehensive market microstructure model: considering the inventory holding costs," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 18(2), pages 183-201, March.

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