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Price Discovery and Foreign Participation in the Republic of Korea’s Government Bond Cash and Futures Markets

Author

Listed:
  • Cyn-Young Park

    (Asian Development Bank)

  • Rogelio Mercado

    (Trinity College Dublin)

  • Jaehun Choi

    (Bank of Korea)

  • Hosung Lim

    (Bank of Korea)

Abstract

This paper examines the impact of foreign participation in Korean Treasury Bond (KTB) futures and its role in price discovery for KTBs, using daily transactions data from the over-the-counter market for KTBs 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

  • Cyn-Young Park & Rogelio Mercado & Jaehun Choi & Hosung Lim, 2015. "Price Discovery and Foreign Participation in the Republic of Korea’s Government Bond Cash and Futures Markets," ADB Economics Working Paper Series 427, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0427
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    Cited by:

    1. 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.
    2. 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.
    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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    Keywords

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    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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