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Korean Stock Market (korean + stock_market)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	75%

Selected Abstracts

Liquidity Commonality and its Causes: Evidence from the Korean Stock Market,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 5 2010
Hyuk Choe
G11; G14; G18 Abstract This paper investigates the causes of liquidity commonality. We consider information asymmetry, volatility, utilitarian trading interest, style-based trading, inventory cost, and investor sentiment as potential candidates. Our empirical analysis shows that greater information asymmetry causes higher liquidity commonality. The significant effect of the order imbalance beta supports our volatility hypothesis as a cause of liquidity commonality. Program trading and the KOSPI200 index dummy are positively related to liquidity commonality, which is consistent with the style-based trading hypothesis. Higher individual trading is associated with higher liquidity commonality, which means that investor sentiment operates in the Korean market. However, volume beta and return beta, as proxies for the utilitarian trading effect and the inventory cost, respectively, are insignificantly related to liquidity commonality. [source]

Regulatory Environment, Changing Incentives, and IPO Underpricing in the Korean Stock Market,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 2 2010
Inseok Shin
G24; G28; G32 Abstract I examine the importance of price support regulation in explaining IPO underpricing in the Korean stock market from 2001 through 2007. In contrast to the US practice where price support is provided effectively at the cost of the issuing firms, the price support in Korea resulted in direct costs to the underwriters. I construct a simple model to capture this feature of the regulation where IPO prices are determined through the interaction of the maximizing behaviors of underwriters and issuers. In the model, three variables, namely, the expected post-IPO price volatility, size of newly issued shares, and size of tradable shares, are specified to affect the opportunity costs of underpricing. When combined with the regulatory regime change in 2003, which lightened underwriters' obligations towards price support, the model implies that the magnitudes of the relationships between the three variables and underpricing have decreased since 2003. I test the hypotheses and find supportive empirical results: the relationship of underpricing with the expected price volatility has changed from positive to insignificant; those with sizes of newly issued and tradable shares from insignificant to negative. The findings contrast with existing Korean studies that do not find any evidence that price support regulation decreased the opportunity cost of underpricing for underwriters. The results also illustrate a more general point that to fully understand underpricing in a given stock market, it is crucial to take into account the regulatory environment that systematically influences agents' incentives to control or generate underpricing. [source]

An early warning system for financial crisis using a stock market instability index

EXPERT SYSTEMS, Issue 3 2009
Dong Ha Kim
Abstract: This paper proposes to utilize a stock market instability index (SMII) to develop an early warning system for financial crisis. The system focuses on measuring the differences between the current market conditions and the conditions of the past when the market was stable. Technically the system evaluates the current time series against the past stable time series modelled by an asymptotic stationary autoregressive model via artificial neural networks. Advantageously accessible to extensive resources, the system turns out better results than the conventional system which detects similarities between the conditions of the current market and the conditions of previous markets that were in crisis. Therefore, it should be considered as a more advanced tool to prevent financial crises than the conventional one. As an empirical example, an SMII for the Korean stock market is developed in order to demonstrate its potential usefulness as an early warning system. [source]

Automated generation of new knowledge to support managerial decision-making: case study in forecasting a stock market

EXPERT SYSTEMS, Issue 4 2004
Se-Hak Chun
Abstract: The deluge of data available to managers underscores the need to develop intelligent systems to generate new knowledge. Such tools are available in the form of learning systems from artificial intelligence. This paper explores how the novel tools can support decision-making in the ubiquitous managerial task of forecasting. For concreteness, the methodology is examined in the context of predicting a financial index whose chaotic properties render the time series difficult to predict. The study investigates the circumstances under which enough new knowledge is extracted from temporal data to overturn the efficient markets hypothesis. The efficient markets hypothesis precludes the possibility of anticipating in financial markets. More precisely, the markets are deemed to be so efficient that the best forecast of a price level for the subsequent period is precisely the current price. Certain anomalies to the efficient market premise have been observed, such as calendar effects. Even so, forecasting techniques have been largely unable to outperform the random walk model which corresponds to the behavior of prices under the efficient markets hypothesis. This paper tests the validity of the efficient markets hypothesis by developing knowledge-based tools to forecast a market index. The predictions are examined across several horizons: single-period forecasts as well as multiple periods. For multiperiod forecasts, the predictive methodology takes two forms: a single jump from the current period to the end of the forecast horizon, and a multistage web of forecasts which progresses systematically from one period to the next. These models are first evaluated using neural networks and case-based reasoning, and are then compared against a random walk model. The computational models are examined in the context of forecasting a composite for the Korean stock market. [source]

Regulatory Environment, Changing Incentives, and IPO Underpricing in the Korean Stock Market,

Financial Reporting by Business Groups and the Market's Ex ante Valuation of Tunneling: Evidence from Korean Chaebols,

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 4 2009
Kwon-Jung Kim
Abstract This study examines how the Korean stock market reacts to the release of group-level financial statements by Korean business groups (chaebols). I find that chaebol firms that perform relatively well (measured by ROE) within their group but whose controlling shareholders have low levels of cash-flow rights experience negative price reactions particularly when their group ROE is low. In contrast, chaebol firms whose controlling shareholders have high levels of cash-flow rights do not experience negative price reactions even when their group ROE is negative. These findings are consistent with the market anticipating that "tunneling" will occur in low-cash-flow-right firms, but not in high-cash-flow-right firms, to provide support to poorly performing firms. To corroborate these results, I also examine whether tunneling actually occurs within one year after the group-earnings announcements. I find that in many cases, resources of low-cash-flow-right firms with relatively good performance are actually transferred to poorly performing firms (mostly, unlisted firms) through purchasing new equity of poorly performing firms. Moreover, the magnitude of negative price reactions at the time of group-earnings announcements is significantly related to the magnitude of resources transferred to poorly performing firms. [source]

Efficiency, Cointegration and Contagion in Equity Markets: Evidence from China, Japan and South Korea,

ASIAN ECONOMIC JOURNAL, Issue 1 2009
A.S.M. Sohel Azad
C14; C32; G14; G15 This paper empirically examines whether three East Asian stock markets, namely, those of China, Japan and South Korea, are individually and/or jointly efficient, and whether contagion exists between the cointegrated markets. While individual market efficiency is examined through testing for the random walk hypothesis, joint market efficiency is examined through testing for cointegration and contagion. The present study finds that the hypothesis of individual market efficiency is strongly rejected for the Chinese stock market, but not for the Japanese and the South Korean stock markets. However, when testing for cointegration, market efficiency is strongly rejected for all these markets. We take a simple case of contagion and find that although there is a long-term relationship among the three markets, the contagion hypothesis cannot be rejected only between Japanese and South Korean stock markets, indicating short-run portfolio diversification benefits from these two markets. [source]

Relative Efficiency of Price Discovery on an Established New Market and the Main Board: Evidence from Korea

ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 4 2010
Kyong Shik Eom
G10; G14; G15 Abstract We examine the relative efficiency of price discovery between the new market (KOSDAQ) and the main board (KOSPI) in the Korean stock markets that have the same trading mechanism (i.e. electronic limit-order book), focusing on the comparisons of each market's efficiency of price discovery in three aspects: speed, degree, and accuracy. We find that, for our entire firm sample, price discovery on KOSDAQ is less efficient than on KOSPI. However, the price discovery of the most liquid group (top 40 stocks) on KOSDAQ turns out to be as efficient as the lowest group (top 160th,200th stocks) among the top 200 liquid stocks on KOSPI. These two quintiles are comparable in terms of their firm characteristics, so it appears that the greater overall efficiency of price discovery on KOSPI is due to the characteristics of its listed firms, rather than any inherent difference between a main board and a new market. We also find evidence that the speed of price discovery is mainly determined by turnover, whereas the accuracy of price discovery is mainly determined by turnover and intraday volatility. All together, our results provide some policy implications for developing or even developed countries eager to establish a viable new market. First, price discovery in a successful or viable new market in an emerging economy behaves as predicted in the market microstructure literature, even though that literature is based primarily on main boards in advanced stock markets. Second, price discovery in the most liquid group in a new market is more accurate, although slower, than in the lowest group among the liquid stocks on a main board; on balance, the main board and new market are comparable. Finally, the accuracy of price discovery is more (less) impacted by turnover (intraday volatility) on the new market than on the main board. [source]