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High Frequency Trading in the Korean Index Futures Market

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  • Eun Jung Lee

Abstract

We investigate the trading behavior of high frequency trading (HFT), the impact of HFT on market quality, its role in the price discovery process, and its profitability, using a very detailed data set of the KOSPI 200 index futures market. We find that high frequency traders (HFTs) do not provide liquidity in the futures market, nor does HFT have any role in enhancing market quality. Indeed, HFT is detrimental to the price discovery process. This finding is contrary to those in the existing literature on HFT in equity markets. We also find that profitable opportunities for HFTs are rare after transaction costs are considered, with the notable exception that foreign HFTs can earn a profit in the index futures market. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 35:31–51, 2015

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  • Eun Jung Lee, 2015. "High Frequency Trading in the Korean Index Futures Market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(1), pages 31-51, January.
  • Handle: RePEc:wly:jfutmk:v:35:y:2015:i:1:p:31-51
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    Cited by:

    1. Yue Zhao & Difang Wan, 2018. "Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(2), pages 243-270, February.
    2. Yang, Yurun & Göncü, Ahmet & Pantelous, Athanasios A., 2018. "Momentum and reversal strategies in Chinese commodity futures markets," International Review of Financial Analysis, Elsevier, vol. 60(C), pages 177-196.
    3. Yang, Heejin & Kutan, Ali M. & Ryu, Doojin, 2019. "Volatility information trading in the index options market: An intraday analysis," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 412-426.
    4. Jangkoo Kang & Kyung Yoon Kwon & Wooyeon Kim, 2020. "Flow toxicity of high‐frequency trading and its impact on price volatility: Evidence from the KOSPI 200 futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(2), pages 164-191, February.
    5. Kim, Jun Sik & Ryu, Doojin, 2015. "Are the KOSPI 200 implied volatilities useful in value-at-risk models?," Emerging Markets Review, Elsevier, vol. 22(C), pages 43-64.
    6. Atilgan, Yigit & Demirtas, K. Ozgur & Simsek, Koray D., 2016. "Derivative markets in emerging economies: A survey," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 88-102.
    7. Phiri, Andrew, 2017. "Threshold convergence between the federal fund rate and South African equity returns around the colocation period," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 13(1).
    8. Lee, Jaeram & Kang, Jangkoo & Ryu, Doojin, 2015. "Common deviation and regime-dependent dynamics in the index derivatives markets," Pacific-Basin Finance Journal, Elsevier, vol. 33(C), pages 1-22.
    9. Zhou, Hao & Kalev, Petko S., 2019. "Algorithmic and high frequency trading in Asia-Pacific, now and the future," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 186-207.
    10. Ramos, Henrique Pinto & Perlin, Marcelo Scherer, 2020. "Does algorithmic trading harm liquidity? Evidence from Brazil," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

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