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Effectiveness of the conditional random‐end trading mechanism on the Korea Exchange: Normal trade and Option Shock

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  • Kyong S. Eom
  • Kyung Y. Kwon
  • Jong‐Ho Park

Abstract

Option Shock was a notable 2010 manipulation in Korean stock and derivatives markets. Motivated by Option Shock, we examine the effectiveness of the conditional random‐end (RE) trading mechanism during the opening or closing call auction on the Korea Exchange. We find the conditional RE trading mechanism promotes price stabilization, but with some reservations, and improves price discovery and efficiency at the open, but causes overshooting at the close. We also find it somewhat effective in filtering out spoofing orders, but failed to stabilize the market in the extreme case of Option Shock, which motivated a change to an unconditional RE trading mechanism.

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  • Kyong S. Eom & Kyung Y. Kwon & Jong‐Ho Park, 2021. "Effectiveness of the conditional random‐end trading mechanism on the Korea Exchange: Normal trade and Option Shock," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(10), pages 1545-1568, October.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:10:p:1545-1568
    DOI: 10.1002/fut.22223
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    References listed on IDEAS

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    1. Kyong Shik Eom & Kyung Yoon Kwon & Sung Chae La & Jong-Ho Park, 2022. "Dynamic and Static Volatility Interruptions: Evidence from the Korean Stock Markets," JRFM, MDPI, vol. 15(3), pages 1-19, February.

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