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

47 Pages Posted: 7 Apr 2015 Last revised: 29 May 2018

See all articles by Cyn-Young Park

Cyn-Young Park

Asian Development Bank

Rogelio Mercado

Asian Development Bank

Jaehun Choi

The Bank of Korea

Hosung Lim

The Bank of Korea; Bank of Korea - Economic Research Institute

Date Written: March 1, 2015

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.

Keywords: price discovery, emerging market bonds, foreign participation

JEL Classification: G10, G13, G14

Suggested Citation

Park, Cyn-Young and Mercado, Rogelio and Choi, Jaehun and Lim, Hosung, Price Discovery and Foreign Participation in the Republic of Korea's Government Bond Cash and Futures Markets (March 1, 2015). Asian Development Bank Economics Working Paper Series No. 427, Available at SSRN: https://ssrn.com/abstract=2590246 or http://dx.doi.org/10.2139/ssrn.2590246

Cyn-Young Park (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines
(632) 632-5473 (Phone)

HOME PAGE: http://www.adb.org

Rogelio Mercado

Asian Development Bank ( email )

6 ADB Avenue Mandaluyong City 1550
Metro Manila
Philippines

Jaehun Choi

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

Hosung Lim

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
31
Abstract Views
597
PlumX Metrics