Phase-transition behavior in the emerging market: Evidence from the KOSPI200 futures market

Abstract

This study examines the phase-transition behavior of the KOSPI200 futures market and discusses empirical findings in the context of the unique characteristics of that market. We study the two qualitatively different phases of the market based on two related measures: the volume-imbalance measure proposed by Plerou et al. (2003) and the return-related measure. The empirical simulations carried out in this study suggest that a peculiar distribution of trading volume&8212;which possibly reflects dominant individual trading, the nature of informed trading, and/or investor behavior in the KOSPI200 futures market&8212;plays a critical role in generating the two-phase phenomenon. The simulation results also imply that neither the serial correlation

of trade indicator variable nor that of (signed) trade volume causes the bifurcation of the conditional probability density of the volume-imbalance measure, which otherwise typically implies a phase transition.