Lead-Lag Relationship between Returns and Implied Moments: Evidence from KOSPI 200 Intra-Day Options Data

Abstract

This study investigates whether a lead-lag relationship exists between the returns and the moments of the implied risk-neutral density (RND) in Korea Composite Stock Price Index (KOSPI) 200 spot, futures, and options markets. The empirical analysis suggests that although there is a bi-directional lead-lag relationship between the returns and the implied moments, the skewness and kurtosis of the implied RND Granger-cause the spot and futures returns more strongly than the returns do. In contrast, the implied volatility is shown to Granger-cause the returns less strongly than the returns do. In addition, this study shows that the lead-lag relationship strengthens when the spot market is exceptionally bullish or bearish.

Keywords: Lead-lag relationship, implied risk-neutral density, skewness, kurtosis

JEL Classification: G14, G17