Sidecar Performance: Evidence from the Korean Stock Market

Abstract

In the paper, the effects of sidecar on the Korean stock market are considered. Throughout the study, we could reach the following conclusions. Firstly, the analysis of return dynamics illustrates that there are no price reversals for all sample groups but price continuations after the event. Secondly, the analysis of volatility and liquidity shows that there are some differences in the effects of sidecar on market volatility and liquidity according to the sample periods‘ however, in the post period of widening of the sidecar trigger levels, the mechanism couldn’t play any role of stabilizing the market volatility and resolving the increased order imbalance around the event. From these results, we could infer that sidecar delays the normal price discovery process and undermine the market liquidity. Also, we suggest that the increased market efficiency of Korea stock market after the financial crisis in 1997, especially deregulation in securities markets, can be a good additional factor for explaining the diffrences in the role of sidecar between sample periods.