Price impact asymmetry of futures trades: Trade direction and trade size

Consistent with the empirical results of previous studies on market microstructure issues in Korea's index derivatives market (i.e., KOSPI200 index futures and options market), we find that large trades generally incur greater permanent price impacts than small trades. This indicates that large trades generally have greater information content than the smaller ones. However, in contrast to the majority of empirical studies in this area, which have reported that buy trades are more informative than sell trades in global financial markets, we find that the permanent price impact of seller-initiated trades is clearly and substantially larger than that of buyer-initiated trades in the KOSPI200 futures market. This indicates that sell trades are more informed than buy trades in the index futures market, where informed investors can freely submit sell orders without any restrictions. The greater information content of sell trades is also apparent when trades are classified by their size. These results are quite remarkable considering that the sample period of this study (2003-2006) corresponds to a recovery period, during which the underlying stock index price and the futures price continued to increase.