The purpose of this study is to investigate the cause and behavior of Futures Mispricing in the Korean market. Futures Mispricing time series used in this study is from nearest futures price and KOSPI 200 index price.
We examine the cause of Futures Mispricing, the relationship between Futures Mispricing and implied volatility and lead-lag relationship.
For empirical analysis, we use regression analysis and GMM test.
Major findings of this study are as follows.
First, in the Korean market, there is several causes like tax and accounting law which make Futures underpriced.
Second, we can define the difference between implied volatility of call option and put option as market expectation.
Third, when market expectation is positive, the direction of Futures Mispricing is also positive and vise versa.
Fourth, the magnitude of Futures Mispricing is in proportion to the strength of market expectation.
Fourth, Futures Mispricing is led by market expectation.
