2017, Vol.5, No.1

Asset Management Review 2023 KCI Impact Factor : 0.55

pISSN : 2288-6672 / eISSN : 2713-6248
https://journal.kci.go.kr/capm

This paper is an empirical study on delta violations of the KOSPI 200 index options to test the theoretical constraint established by Bergman et al.(1996), that is  ≤  C ≤ 1 and   ≤  P ≤  where  C and  P are deltas of call and put options respectively. I used daily price data of the near-maturity contracts from January 4, 2010 to June 9, 2016 to compute deltas. The delta violation is defined as follows; Type 1 violation is  C ≤  for call option or  P ≥  for put option, which means reverse reaction of option price to index change, and Type 2 violation is  C ≥  for call option or  P ≤  for put option, which means overreaction of option price. The most important finding of this paper is that the frequency and the size of delta violations are unexpectedly large. The relative frequencies of Type 1 (reverse response) and Type 2 (overreaction) violations are respectively 25.70% and 18.98% of call option deltas. Those of put option deltas are 22.68% and 17.83%. The average of delta of Type 1 is –1.2503 and that of Type 2 is 3.5465 for call options, and those for put options are 1.1681 and –3.5684. These statistics show that more than 40% of option deltas are violated from theoretical constraints and the average of violations are much larger than expected. These results suggest that KOSPI200 index options cannot be regarded as redundant assets and used as hedging devices. The frequency and size of violations give statistical evidence supporting popular conception that index options are gambles or speculative assets. Frequencies of violations appear to be related to moneyness, days to maturity and daily transaction volumes. Two of notable results among many findings in this paper are; the frequencies of Type 2 violations for deep in-the-money options are close to 50% regardless of option type, and the averages of Type 2 violations both for call and put options are much larger only when we have 11 to 15 days to maturity.

This study investigated the volatility spillover between the U.S. and Korean stock market, and analysed the impact of several news events shocks in the U.S. on Korea. We used the daily stock index return data covering from January 2000 to December 2016. The analysis of the pre and post global financial crisis using Engle and Kroner(1995)’s bivariate BEKK-GARCH model revealed that the bi-directional volatility spillover between the two stock markets. And the linkage between the U.S. and the Korean stock markets increased substantially in the post-crisis era, suggesting that the two markets had become more interdependent and integrated. We further uncovered the dynamics of the volatility spillover between the two markets by means of the volatility impulse response functions developed by Hafner and Herwartz(2006). Based on several historical shocks and news events that caused the turbulence in the U.S. stock markets, we found that the patterns of volatility responses were more dynamic. And the persistence of volatility shocks was decreased substantially during the post-crisis period. These results were mainly due to the increased interdependence between the two markets. Also, the increased linkage made the pattern of the volatility impulse response functions were more dynamic in the post-crisis era rather than pre-crisis era.

This study picks up value stocks from Korean stock market and then apply F-SCORE of Piotroski(2000) to get winner group and loser group. For the two groups we get 10 years daily stock prices and apply six kinds of loser following on-line portfolio strategies. For each strategy, we calculate final returns and risk-return ratios and find that OLMAR and RMR strategies have superior performances than any other strategies. Specifically RMR strategy had superior performance when the two groups are added together than the groups are treated separately. This may imply that accounting information does not have long term effect as far as on-line portfolio strategy is concerned. On the other hand OLMAR-S strategy is appropriate for the whole group and winner group and OLMAR-E strategy is appropriate for the lose group only. General conclusion is that RMR strategy is the most appropriate strategy in Korean stock market as an on-line portfolio strategy.