Since the listing of KOSPI 200 futures in May 1996, the derivatives market has grown into one of the key derivatives markets in the world. In the meantime, the market has achieved a higher level of excellence in market operation and secured a trading system and fair market management, and consequently figures as a decent reference among derivatives markets. The brief history of Korean derivatives market related to the products is as follows:
Table 2.3: History of the Korean Derivatives Market
May. 1996 KOSPI 200 Futures listed
Jul. 1997 KOSPI 200 Options listed
Apr. 1999 US Dollar, CD Interest Rate, Gold Futures & US Dollar Options listed
Sep. 1999 3-year KTB Futures listed
Jan. 2001 Kosdaq 50 Futures listed
Sep. 2001 KOSPI 200 Inter-contract months spread listed
Dec. 2001 Kosdaq 50 Options listed
Jan. 2002 Equity Options listed
May. 2002 Options on 3-year KTB Futures listed
Dec. 2002 MSB Futures listed
Aug. 2003 5-year KTB Futures listed
Jan. 2005 Consolidated KRX launched
Nov. 2005 STAR Index Futures listed
Dec. 2005 Kosdaq 50 Futures & Options de-listed
May. 2006 Yen Futures/Euro Futures listed
Table 2.3 (cont.): History of the Korean Derivatives Market
Dec. 2007 CD Interest Rate Futures, Options on 3-year KTB Futures de-listed
Feb. 2008 10-year KTB Futures listed
Source: Korea Exchange (KRX), http://www.krx.co.kr/
Many factors have contributed to the impressive growth of Korean derivatives market. Some of the main contributing factors are:
After the financial crisis of the late 1990s, the demands for risk management tools have increased. The investors have been effectively utilizing such products as KOSPI 200 futures and options, 3-Year KTB futures and USD futures to meet their hedging needs.
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Source: Source: Korea Exchange (KRX), http://www.krx.co.kr/
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Many people believe the efficient market hypothesis is inefficient and Bloomfield presents an alternative to this hypothesis. Bloomfield posits the meaning of costly statistics is not fully revealed in the market. Some investors put more importance on some statistics rather than others which indicates that some statistics are less exposed in market prices. IRH essentially extends EMH by identifying extraction costs of statistics from publicly available data.
Pennings, Joost M.E. Research in Agricultural Futures Markets: Past Present and Future. Presentation Paper: Wageningen Agricultural University: Netherlands. 8 June 2001.
I will first present some brief theory on the Efficient Market Hypothesis and behavioral finance. Then I give an overview of the critique by Fama (1998). In the next section I will present the main points of the articles by Odean (1998), and Barber and Odean (2007). These are then compared to the relevant conclusions of Fama.
If the development of Financial Market in America is like a sturdy adult, I would say the development of Financial Market in China is just like a child. The history of the U.S. financial market was established and has been growing over two centuries. For China, only twenty year has now passed since the financial market was built and growth. The Chinese financial market seems to be immature compared to the U.S. For example, China’s financial market does not have a thorough monitored stock market. The child is just starting to imitate the behavior and follow the step of the adult. However, the child is too young that mistakes always being made. On the other hand, since the child is in his early growth stage, a high level of growth is undertaking and a large progress might be attained. In today's China’s financial market, it is necessary for China to gather finance professionals in development of financial market. As a recent graduate student, working in the finance field less than a year, it is extremely hard for me in making a tiny positive effect on the growth of Chinese financial. However, to be engaged myself to the development of Chinese financial market is my long-term career goal.
South Korea has a strong $1-trillion economy; it is the third largest market in Asia, behind Japan and China. It also has the 13th largest economy in the world. It is expected that the economy’s current upward trajectory will continue for some time to come. This makes South Korea an attractive market for foreign investment, especially as the world economy, as a whole, continues to improve.
The expanding global market has created both staggering wealth for some and the promise of it for others. Business is more competitive than ever before, and every business, financial or product-based, regardless of size or international presence is obligated to operate as efficiently as possible. A major factor in that efficient operation is to take advantage of every opportunity to maximize profits. Many multinational organizations have used derivatives for years in financial risk management activities. These same actions that can protect multinational organizations against interest rate futures and currency fluctuations can be used to create profits for those same organizations.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
In this paper, we discuss the effect of CSI 300 index futures trading on the Chinese stock market. Specifically, we focus on the two topics (1) price volatility and efficiency of market, and (2) the arbitrage trading
In conclusion, hedging risk with financial derivatives can give firm range of benefits such as lower probability of having financial distress, lower value of debt ratio, and earn tax benefit. It can be concluded that firm should hedge risk using financial derivatives because lot evidence shows that firm using this strategy is more successful than those who are not. However, since different type of companies facing different risks, they should not necessarily use the same hedging strategy.
...t Efficiency and Stock Market Predictability" [Online] Available On: http://www.e-m-h.org/Pesa03.pdf [Accessed On 5 december, 2011].
Howells, Peter., Bain, Keith 2000, Financial Markets and Institutions, 3rd edn, Henry King Ltd., Great Britain.
Chapter 11 closes our discussion with several insights into the efficient market theory. There have been many attempts to discredit the random walk theory, but none of the theories hold against empirical evidence. Any pattern that is noticed by investors will disappear as investors try to exploit it and the valuation methods of growth rate are far too difficult to predict. As we said before the random walk concludes that no patterns exist in the market, pricing is accurate and all information available is already incorporated into the stock price. Therefore the market is efficient. Even if errors do occur in short-run pricing, they will correct themselves in the long run. The random walk suggest that short-term prices cannot be predicted and to buy stocks for the long run. Malkiel concludes the best way to consistently be profitable is to buy and hold a broad based market index fund. As the market rises so will the investors returns since historically the market continues to rise as a whole.
...ting in hedging activities in the financial futures market companies are able to reduce the future risk of rising interest rates. By participating in the financial futures market companies are able to trade financial instruments now for a future date (Block & Hirt, 2005).
The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...
Systemically important payment systems include the large value payment system MEPS+ and securities and derivatives clearing and settlement systems operated by the Singapore Exchange (SGX). Two financial central counterparty clearing house (CCPs) are the Central Depository (Pte) Limited (CDP) that clears equities and corporate debt securities; and the Singapore Exchange Derivatives Clearing Limited (SGX-DC) that clears exchange traded and OTC derivatives. CDP’s value of transactions processed was equivalent to 94 percent of GDP in 2012. Worldwide, SGX- DC is the eighth largest clearer in exchange traded equity index futures. Singapore is also one of the largest trading centres for OTC derivatives in Asia. CDP and SGX-DC are assessed as effective and efficient CCPs with sound risk management frameworks. Both CCPs comply with relevant international standards. They are guided by SGX’s comprehensive and transparent risk management framework comprising clear policies, sound governance arrangements and operational systems, accompanied with business continuity procedures that are regularly tested. The CCPs apply a comprehensive credit risk management framework which serves to maintain sufficient financial resources to cover the default of the clearing member and its affiliates with the largest exposure, as well as the default of the two financially weakest clearing members. However, SGX’s