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An Empirical Investigation of the Lead-Lag Relations of Returns and Volatilities among the KOSPI200 Spot, Futures and Options Markets and their Explanations

Jangkoo Kang (corresponding author) is at the Graduate School of Management, Korea Advanced Institute of Science and Technology, 207-43 Cheongryangri-dong, Dongdaemun-Gu, Seoul-130012. E-mail: jkkang{at}kgsm.kaist.ac.kr

Chang Joo Lee

Chang Joo Lee is at the Graduate School of Management, University of Illinois at Urbana-Champaign, Champaign, IL61820-6978 USA.

Soonhee Lee

Soonhee Lee is at the Korea Bond Pricing & Rating Co., Kwanghwamoon Building (9th floor) Chongro-Gu, Seoul-110730.

This article empirically examines the lead-lag relations among the KOSPI200 spot market, the KOSPI200 futures market, and the KOSPI200 options market, and provides some explanations for the observed lead-lag relations. In general, the KOSPI200 futures and options markets lead the KOSPI200 spot market by up to 10 minutes in terms of returns and by 5 minutes in terms of volatilities, even after purging the infrequent trading effect as well as the bid-ask spread effect. The KOSPI200 options market leads and lags the KOSPI200 futures market by 5 minutes only in terms of returns. The observed lead-lag relations seem to be caused by the difference in transaction costs of the three markets.

Key Words: JEL Classification: G13 • JEL Classification: G14 • Lead-Lag Relations • Information Transmission • Market Efficiency

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