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An Empirical Investigation of the Lead-Lag Relations of Returns and Volatilities among the KOSPI200 Spot, Futures and Options Markets and their Explanations

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  • Jangkoo Kang

    (Jangkoo Kang (corresponding author) is at the Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-dong, Dongdaemun-Gu, Seoul-130012. E-mail: jkkang@kgsm.kaist.ac.kr)

  • Chang Joo Lee

    (Chang Joo Lee is at the Graduate School of Management, University of Illinois at Urbana-Champaign, Champaign, IL61820-6978 USA.)

  • Soonhee Lee

    (Soonhee Lee is at the Korea Bond Pricing & Rating Co., Kwanghwamoon Building (9th floor) Chongro-Gu, Seoul-110730.)

Abstract

This article empirically examines the lead-lag relations among the KOSPI200 spot market, the KOSPI200 futures market, and the KOSPI200 options market, and provides some explanations for the observed lead-lag relations. In general, the KOSPI200 futures and options markets lead the KOSPI200 spot market by up to 10 minutes in terms of returns and by 5 minutes in terms of volatilities, even after purging the infrequent trading effect as well as the bid-ask spread effect. The KOSPI200 options market leads and lags the KOSPI200 futures market by 5 minutes only in terms of returns. The observed lead-lag relations seem to be caused by the difference in transaction costs of the three markets.

Suggested Citation

  • Jangkoo Kang & Chang Joo Lee & Soonhee Lee, 2006. "An Empirical Investigation of the Lead-Lag Relations of Returns and Volatilities among the KOSPI200 Spot, Futures and Options Markets and their Explanations," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 5(3), pages 235-261, December.
    • Handle: RePEc:sae:emffin:v:5:y:2006:i:3:p:235-261
    DOI: 10.1177/097265270600500303
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    Cited by:

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    2. Sifat, Imtiaz Mohammad & Mohamad, Azhar & Mohamed Shariff, Mohammad Syazwan Bin, 2019. "Lead-Lag relationship between Bitcoin and Ethereum: Evidence from hourly and daily data," Research in International Business and Finance, Elsevier, vol. 50(C), pages 306-321.
    3. Sanjay Sehgal & Mala Dutt, 2016. "Domestic and international information linkages between NSE Nifty spot and futures markets: an empirical study for India," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 239-258, September.
    4. Sarveshwar Kumar Inani, 2017. "Price discovery in Indian stock index futures market: new evidence based on intraday data," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 14(1), pages 23-43.
    5. Kumar, Satish, 2018. "Price discovery in emerging currency markets," Research in International Business and Finance, Elsevier, vol. 46(C), pages 528-536.
    6. Shailesh Rastogi & Chaitaly Athaley, 2019. "Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective," JRFM, MDPI, vol. 12(2), pages 1-15, June.
    7. Ren, Fei & Ji, Shen-Dan & Cai, Mei-Ling & Li, Sai-Ping & Jiang, Xiong-Fei, 2019. "Dynamic lead–lag relationship between stock indices and their derivatives: A comparative study between Chinese mainland, Hong Kong and US stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 513(C), pages 709-723.
    8. Ming-Yuan Leon Li & Chun-Nan Chen, 2010. "Examining the interrelation dynamics between option and stock markets using the Markov-switching vector error correction model," Journal of Applied Statistics, Taylor & Francis Journals, vol. 37(7), pages 1173-1191.
    9. Judge, Amrit & Reancharoen, Tipprapa, 2014. "An empirical examination of the lead–lag relationship between spot and futures markets: Evidence from Thailand," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 335-358.
    10. Gong, Chen-Chen & Ji, Shen-Dan & Su, Li-Ling & Li, Sai-Ping & Ren, Fei, 2016. "The lead–lag relationship between stock index and stock index futures: A thermal optimal path method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 63-72.

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    More about this item

    Keywords

    JEL Classification: G13; JEL Classification: G14; Lead-Lag Relations; Information Transmission; Market Efficiency;
    All these keywords.

    JEL classification:

    • 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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