An Empirical Analysis on the Trading Behavior after Increase of Multiplier for KOSPI200 Options

Lee, Woo Baik

Korean Journal of Financial Studies 2014;43(1):237-277.
Published online February 28, 2014.

Woo Baik Lee

KOSPI200 옵션 거래승수 인상 조치에 따른 투자 행태 변화 분석

이우백

Abstract

The multiplier for KOSPI200 Options was increased to 500,000won equal to five times prior multiplier since March 9, 2012. The implementation of new multiplier is evaluated as the policy that induces radical change in liquidity on Korean derivatives market. This paper attempts to examine how this increase of multiplier influences trader`s behavior and market quality employing VAR. The main results are summarized as followings. Daily trading volume and open interest was sharply decreased by about eighty percent of pre period before new multiplier was implemented. However, daily change in put-call ratio by moneyness tends to follow the market return consistently throughout the pre and post period in daily lead-and lag relationship. KOSPI200 returns also exogenously explains the change in put-call ratio in daily contemporaneous relationship. Overall empirical results indicate that increase of multiplier positively contributes to the sound market quality policy-makers intended for rather than adverse reaction of trader`s behavior. Also despite shrinkage in liquidity due to new multiplier, the informational efficiency of option market is robust without deterioration. The study also provides implications that policy about derivatives market should be examined in consideration of appropriate market quality, for policy of new multiplier was implemented in maturity stage of KOSPI200 Options market leading position in global derivatives market activity.

Key Words: 거래승수,유동성,인과관계,풋-콜 비율,Causality,Liquidity,Multiplier,Put-call Ratio,VAR,VAR