Abstract
The National Pension Service (NPS) of Korea is one of the largest institutional investors in the world and it has been known as the market stabilizer in the Korean stock market. Nevertheless, it is hard to find the research about the impact of the NPS on the futures market. We investigated the effect of the NPS’s trading KOSPI200 futures on the returns, the liquidity and the volatility of the market using the recent ten years’ transaction data. The main findings are as follows. First, the NPS’s net investment flow (NIF) in the KOSPI200 futures market shows the predictability about the returns of both KOSPI200 futures and KOSPI200 spot index. Second, the NPS’s NIF in the KOSPI200 futures market improves the liquidity of the KOSPI market, where the transactions involved in both the spot market and the futures market occur. Third, the NPS’s NIF in the KOSPI200 futures market reduces the volatility of both the KOSPI200 futures market and the KOSPI market. Unlike the prior studies showing that our futures market tends to increase the volatility of the stock market through the volatility transfer, our finding suggests that the NPS’s trading KOSPI200 futures contributes to decreasing the volatility in both markets. To the best of the authors’ knowledge, this paper is the first study that investigates the impact of the NPS’s trading KOSPI200 futures on the KOSPI200 futures market and the stock market. It shows that the NPS plays a role of the market stabilizer in the futures market. In addition, the NPS’s trading KOSPI200 futures also affects the KOSPI stock market, stabilizing it in terms of both the liquidity and the volatility.
Highlights
The National Pension Service (NPS) of Korea is the third largest institutional investor in the world and has the largest influence on the Korean stock market
We investigate the impact of the transactions by the NPS on the KOSPI200 futures market
Main findings of this paper are as follows
Summary
The National Pension Service (NPS) of Korea is the third largest institutional investor in the world and has the largest influence on the Korean stock market. Unlike the prior studies suggesting that the existence of the futures market exaggerates the volatility in the spot market, this paper shows that the NPS’s net investment in the futures market reduces the volatility in the spot market It suggests that the NPS plays a role as the market stabilizer as it does in the stock market. In the spot market, the NPS pursued the negative feedback strategy, which is to buy the stocks as the prices go down and to sell the stocks as the prices go up This is found in the separate studies of the KOSPI market and the KOSDAQ market (Kho et al, 2008; Woo and Kim, 2018, 2019). The NPS reduces the volatility at both the market level and the individual stock level, playing as a role of the Authors Kho et al (2008)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
