Abstract
Purpose - In this study, we empirically analyze the relationship between information efficiency and stock price volatility in the Korean stock market using unbalanced panel data from 708 companies listed on the KOSPI from 2000 to 2019. Design/Methodology/Approach - We used information efficiency, stock price volatility, and corporate performance index data for empirical analysis. The information efficiency of listed companies is derived from the delay measure using the MSCI (Morgan Stanley Capital International) index and the stock price data of individual companies while the volatility of stock prices is calculated using the monthly deviation of stock prices. In addition, corporate performance indices that represent profitability, stability and growth are used as control variables. Tools for empirical analysis include pooled OLS, the random effects model and fixed effects model with the appropriate mode selected through the Hausman test. As such, this study focuses on three things: the impact of information efficiency on stock price volatility of the entire Korean stock market, the impact of information efficiency on stock price volatility by industry, and the impact of information efficiency on stock price volatility before and after the global financial crisis. Findings - Results show that improved information efficiency of companies listed on the Korean stock market increases stock price volatility, and these results are found in manufacturing-related industries after the financial crisis. On the other hand, improvements in information efficiency, mainly in non-manufacturing industries, appear to reduce stock price volatility during the pre-crisis period. Research Implications - This study emphasizes that when capital market participants form an optimal portfolio, they should use comprehensive information to identify external environmental changes and inter-industry relationships rather than simple external indicators. In addition, it suggests the need for continuous and selective monitoring of external information for stable development of the stock market and the establishment of a long-term policy system to mitigate information asymmetry.
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