The Korean Journal of Financial Management (재무관리연구)
- Volume 25 Issue 4
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- Pages.117-144
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- 2008
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- 1225-0759(pISSN)
Information Transmission between Cash and Futures Markets through Quote Revisions and Order Imbalances
- Kang, Jang-Koo (Graduate School of Management Korea Advanced Institute of Science and Technology) ;
- Lee, Soon-Hee (ING Life Insurance Korea) ;
- Park, Hyoung-Jin (Seoul Women's University)
- Published : 2008.12.01
Abstract
This article examines the information transmission process between the KOSPI 200 futures market and its underlying stock market, using the 10-second quote and trade data. The VAR analysis reveals that quote revisions through limit orders in general lead trades through market orders. In addition, the VAR analysis shows that the futures market tends to lead the stock market in terms of quote revisions and trades, even though the other direction is also observable. Even when we focus on the events causing large movements in quote revisions and trades, those lead and lag relations between those markets and between quote revisions and order imbalances are confirmed.