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

Publication | March 2015
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In this paper, the authors assess the impact of foreign participation in Korean Treasury Bond (KTB) cash and futures markets and their role in the price discovery process.

Using daily data from the over-the-counter market for cash and the Korea Exchange for futures transactions, the results show that foreign trading in the KTB futures market leads the price discovery process for the underlying bonds. Specifically, foreigners’ daily net long positions in the futures market exert significant influence in both KTB cash and futures prices. The empirical findings also indicate that it is the unexpected component of foreign investors’ net long futures positions that explains a significant share of the pricing effects.

Contents

  • Tables and Figures
  • Abstract
  • Introduction
  • Literature Review
  • Dataset, Descriptive Statistics, and Decomposition of Net Purchases and Positions
  • Empirical Specification and Results
  • Summary and Policy Implications
  • References

Additional Details

Authors
Type
Series
Subjects
  • Finance sector development
  • Financial markets and institutions
  • Industry and trade
Countries
  • Korea, Republic of
SKU
  • WPS157139-2
ISSN
  • 2313-6537 (print)
  • 2313-6545 (electronic)

Published Version

Park, Cyn-Young, Rogelio Mercado Jr., Jaehun Choi, and Hosung Lim. 2017. "Price Discovery and Foreign Participation in Korea's Government Bond Futures and Cash Markets." Journal of Futures Markets 37 (1): 23–51. https://doi.org/10.1002/fut.21785.

Note: ADB recognizes "Korea" as the Republic of Korea.

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