Information Effects of Trade Size and Trade Direction: Evidence from the KOSPI 200 Index Options Market*


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    Acknowledgments: The authors are grateful for the helpful comments from an anonymous referee, Kazuhiko Ohashi, and seminar participants at the Asian Finance Association 2009 International Conference. Ryu acknowledges support from the Hankuk University of Foreign Studies (HUFS) Research Fund.

Corresponding author: Doojin Ryu, Department of International Business, Hankuk University of Foreign Studies, Yongin-si, Gyeonggi-do, Korea. Tel: +82 31 330 4609, Fax: +82 31 330 3074, email:


In the present study, we examine two important issues related to the information content of a trade in option markets: (i) whether trade size is related to information content; and (ii) whether buy and sell transactions carry different information content. Our analysis is based on comprehensive market microstructure data on the KOSPI 200 options, the single most actively traded derivative securities in the world. We use two structural models modified from the Madhavan et al. [Review of Financial Studies 10 (1997) 1035–1064] model, the size-dependent model (SDM), and the dummy variable model (DVM). The SDM incorporates trade size in the model to estimate the magnitude of the information content of a trade. The DVM separately estimates information contents for buyer- and seller-initiated trades using a dummy variable. Our SDM analysis reveals that large trades are in general more informative than small trades. The results from the DVM analysis indicate that buyer-initiated trades generally have greater information content than seller-initiated trades. A further analysis using investor-type information shows that the asymmetry in information content between buy and sell trades is mostly attributable to the orders submitted by foreign and domestic institutional investors.