The Impact of Foreigners’ Trade Imbalances on KOSPI200 Futures Market Volatility

This study examines the impact of foreigners’ intraday trading imbalance on KOSPI200 futures market volatility using quantile regression and OLS methods. Unlike some of the previous related work, this study classifies foreign buy (sell) imbalance into large buy (sell) imbalance and remainder buy (sell) imbalance to consider whether the asymmetric volatility phenomenon is related with the sizes of trading imbalance. This study finds the effect of foreign large buy imbalance on volatility is statistically greater than large sell imbalance under OLS and beyond the quantile 0.75 through Wald tests. However, the coefficients for foreign remainder buy and sell imbalances are statistical equal. Based on these results, this study concludes that asymmetric phenomenon is attributable to foreign large buy and large sell imbalances at upper quantiles, namely that when KOSPI200 futures market volatility is extremely high. Finally, this study also shows that OLS overestimates the contemporaneous effect of foreign trading imbalance on volatility at the lower quantiles, and it underestimates at the upper quantiles.