The purpose of this paper is to investigate the behaviors of major traders (investment companies, banks, and foreigners) and return volatility of Won/USD futures in the South Korea currency market. The results indicate that there exists a significantly positive relationship between currency market volatility and unexpected trading volume in terms of both banks and foreigners, and unexpected open interest is also associated positively with market volatility for all three major traders. Regarding the asymmetric effect, only the banks’ trading volume and foreigners’ net positions are asymmetric on volatility direction. In spot markets, it is found that there exists uni-directional causal relationships in terms of investment trust companies and foreigners. On the other hand, for futures markets we also discover one-way causal relationships in both banks and foreigners. Based on the dispersion of beliefs models and noise trading theories, investment trust companies appear to be uninformed in Won/US futures markets.
Key words: Market volatility, trader behaviors, currency futures, net positions.
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