We show that structured derivatives markets could cause a significant and long-lasting price dislocation of underlying stock due to a abrupt deltahedging triggered by an event predefined in the payoff. Moreover, one event causes another: uncoordinated hedging creates a cascade of price impact on the underlying market. The stock market is susceptible to the sequential dislocation when corresponding derivatives are issued with a largely homogeneous payoff in a concentrated period. Using the unique features of Korean data, we find that the event-driven hedging contributes at least -5% of daily return on the event day. The price impact survives more than 1 week, and exacerbates itself by increasing probability of future events. Our results uncover a new feedback mechanism that amplifies a negative shock. 

Keywords: Price Pressure, Delta Hedging, Uncoordinated Asset Sale, Overthe-Counter Derivatives Markets
JEL classification: G12, G14, G24​