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

Jaehun Choi (), Hosung Lim (), Rogelio Mercado and Cyn-Young Park ()
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Jaehun Choi: The Bank of Korea
Hosung Lim: The Bank of Korea

No 2015-8, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper examines the impact of foreign participation in Korean Treasury Bond (KTB) futures and its role in price discovery, using daily transactions data from the over-the-counter market 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; government bond; foreign participation (search for similar items in EconPapers)
JEL-codes: G10 G13 G14 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2015-03-18
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Citations: View citations in EconPapers (4)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2015-8.pdf Working Paper, 2015 (application/pdf)

Related works:
Working Paper: Price Discovery and Foreign Participation in the Republic of Korea’s Government Bond Cash and Futures Markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1508

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