2015, Vol.3, No.1

Asset Management Review 2023 KCI Impact Factor : 0.55

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

This study investigates the decay phenomenon of leveraged and inverse ETFs in their holding period returns. Multi-day holding period returns of these ETFs often lag behind the respective holding period return of the underlying index times the target multiples. Such a phenomenon has been widely reported in the U.S. since the financial crisis of 2008. We observe a similar phenomenon in the KRX-listed leveraged and inverse ETFs during the recent four-year period. We also find a systematic under-hedging bias in both rising as well as declining market conditions. To exploit the observed decay phenomenon, we construct several investment strategies that include shorting leveraged and inverse ETFs. Our goal is to see if such strategies are economically significant enough to generate a profit after taking into account major cost factors. Finally, we investigate some factors that can explain and thus potentially predict the performance of the long/short investment strategies we experimented. Since the profits from such schemes are mostly generated by the negative compounding effect of the time series of the underlying index, we look at the significance of the several indicator measures such as the reversal of the direction of the market movements and the autocorrelation of the rates of return series of the underlying index. The size of the profit is shown to be increasing with the volatility of the underlying index.

This paper investigates the performance of after-hours trading strategy using the price discovery of the KOSPI200 nighttime futures. As the information on trade of nighttime futures is fully reflected in the opening price of individual stocks listed on KRX, the nighttime futures has the significant predictive power of price movement on next trading day. Based on this price discovery in nighttime futures, the strategy of which traders buys the stocks at the previous closing price in after-hour market and sells at opening price on the upmarket of nighttime futures yields the significant profit. Meanwhile the strategy of selling the stocks at closing session is under-performed due to the price revision after opening irregardless of the previous movement of nighttime futures. This under-performance of strategy on buy at opening price and sell at closing price is consistence with the efficient incorporation of nighttime futures information into opening price. Moreover, the strategy on short-sale of the stocks at the previous closing price in after-hour market and buying at opening price based on the negative information of nighttime futures also yields the significant profit. These investment strategies using the nighttime futures and after-hours market are more effective on the stocks of high beta.

KOSPI200 futures & KOSPI200 options are based on same underlying asset. KOSPI200 futures notional trading amount on the spot market is 6-7 times, including the largest market in the korean derivatives. Existing research on options implied volatility was focused to examine the relationship between the implied volatility of the option and volatility or probability distribution of the underlying asset, the study considers the relevance of the futures market hard to find. Considering options and futures markets are connected by the put-call futures parity, this study analyzed the impact of futures price disparity ratio to the theoretical value of futures on implied volatility of the options. Major findings are: (1) futures price disparity ratio was a significant impact on the relative proportions of the Call options and Put options implied volatility than the absolute value of implied volatility.; (2) Volatility of ITM options showed that most affected by the futures price disparity ratio, and implied volatility of OTM option was the least affected.; (3) If the futures price is overvalued, implied volatility of the Call option is highly likely to appear in the order of ITM>ATM>OTM. And the implied volatility of the Put option is ITM<ATM<OTM likely to appear in the order.; (4) Influence on the option implied volatility of futures prices were found to have reduced the remaining days of the option to be more and more larger. The findings from this research may explain partially the volatility smile phenomenon of the options market.