A Study on Price Behaviors in the Korean ELW Market

Lee, Eun Tae; Choi, Gye Myung; Kim, Jin Seok

Korean Journal of Financial Studies 2011;40(1):1-17.
Published online February 28, 2011.

Eun Tae Lee, Gye Myung Choi, Jin Seok Kim

ELW 시장의 가격 행태 분석

이은태, 최계명, 김진석

Abstract

One of the main characteristics of ELW in Korea is the presence of LP. ELW market is a monopolistic market in some sense. LP only undertakes all amount of ELW issued and trades them with multi investors (one to multi). At the equity option markets, on the other hand, there is no LP. Multi players undertake new issues of equity options in primary market. And multi investors trade them with multi investors (multi to multi). This paper analyzes how those structural differences cause the price differences over the same underlying in the two different markets. The main empirical findings are as follows: First, ELW price is much higher (24.2% on average) than equity option price. Second, the less intrinsic value ELW has, the more expensive ELW becomes. And the degree of price discrepancy is higher in the morning trading session than in the afternoon. Third, there is little correlation between the trading volume and price discrepancy. The main empirical result of the paper indicates that the role of the LPs in the ELW market of Korea should be closely reexamined.

Key Words: 가격 괴리도,기초자산,유동성공급자,주식옵션,주식워런트증권,Degree of Price Difference,ELW,Equity Linked Warrants,Equity Option,Liquidity Provider,LP,Underlying Asset