The Characteristics of Arbitrage Transaction Order and The Asymmetric Response of Stock Market Volatility

The objective of this paper is empirical examination of the relation between the characteristics of program transaction order and the asymmetrical response of stock market volatility. This study uses daily returns for the KOSPI200 index computed with the use of log difference of daily closing prices and program transaction volume from July 7, 2006 to March 31, 2008. This study utilizes an extended MA(1)-GARCH(1,1) model. to capture the asymmetrical response of stock market volatility in reaction to the characteristics order of program transaction. The results can be summarized as follows. The response of the KOSPI200 index return's volatility on the program buy transaction volume is insignificant. The response of the KOSPI200 index return's volatility on the program sell transaction volume is positive and significant. The results of estimating full model simultaneously added both program buy transaction volume and program sell transaction volume are negative and significantly different from zero. These results do not give enough evidence that the response of the KOSPI200 index return's volatilities on the program buy and sell transaction volume are different. The response of the KOSPI200 index return's volatility on the arbitrage buy transaction volume is insignificant. The response of the KOSPI200 index return's volatility on the arbitrage sell transaction volume is positive and significant. The results of estimating full model simultaneously added both the arbitrage buy transaction volume and the arbitrage sell transaction volume are that the coefficient value of the arbitrage buy transaction volume is negative and significant, and the coefficient value of the arbitrage sell transaction volume is positive and significant These results give the evidence that the response of the KOSPI200 index return's volatilities on the arbitrage buy transaction and the arbitrage sell transaction are different. The estimation results, added the non arbitrage buy transaction and the non arbitrage sell transaction volume are that none of the coefficients are significantly different from zero.