Korean Composite Stock Price Index Research Articles

The Effect of Corporate Governance on the Degree of Agency Cost in the Korean Market

This study examines the relationship between corporate governance (CG) and agency costs using Korean market data, particularly for chaebol firms. The final sample includes 660 firm-year observations between 2016 and 2020 for Korean non-financial firms listed on the Korean Composite Stock Price Index (KOSPI). This study employs an ordinary least-squares panel data regression model using two proxies for agency costs, namely, asset utilization ratio and operating expense ratio, and six CG individual metrics as independent variables (CG score, protection of shareholder rights, board structure, disclosure, audit organization, and managerial discretion and error management). We find that firms with high CG experience lower agency costs than those with low CG. Moreover, our evidence suggests that firms can decrease agency costs by improving the quality of CG. The results of our regression model also support the idea that CG is effective in reducing agency costs for chaebol firms but not for non-chaebol firms. Finally, our findings suggest that the implementation of effective CG mechanisms in firms might improve managerial behavior through better decision-making to maximize the value of firms.

Revisiting the Effect of Dividend Policy on Firm Performance and Value: Empirical Evidence from the Korean Market

This study investigates the relationship between dividend policy, firm performance, and value within the Korean market, taking into account the unique context of Chaebol ownership structures. Utilizing a robust dataset of 5478 observations from the Korean Composite Stock Price Index, our empirical analysis employs advanced regression models, revealing distinctive effects of various dividend policy measures through the lenses of interest alignment and managerial entrenchment hypotheses. Surprisingly, while cash dividend payments exhibit a robust positive impact on Tobin’s Q and market-to-book ratios, suggesting an overall positive link with market valuations, a closer inspection reveals divergent impacts for Chaebol and non-Chaebol firms. In Chaebol entities, dividend policy proxies consistently demonstrate positive effects on performance metrics, aligning with the interest alignment hypothesis and highlighting strategic signaling efforts. Conversely, non-Chaebol firms exhibit intriguingly negative impacts, supporting the managerial entrenchment hypothesis and implying potential challenges to market value. Firms should prioritize transparent communication on dividend policies for improved investor decision making and enhanced corporate governance in the dynamic Korean market.

Corporate financial reporting and taxes: How important is prior performance?

Research Question: How do firms behave after significantly missing or exceeding analysts’ earnings estimates in terms of managing earnings and avoiding taxes? Motivation: Prior research provides strong evidence suggesting that managers are motivated to perform at or above analysts' expectations and steer earnings higher to prevent unpleasant earnings surprises. Prior studies have also documented that firms are likely to manage their earnings when they are close to meeting or missing analysts’ expectations. However, little is known about how firms behave after either substantially missing or beating analyst earnings estimates. Idea: This study provides evidence on firms’ earnings management and tax avoidance activities subsequent to the year in which firms substantially fail or succeed meeting analysts’ earnings consensus forecasts. Data: The data were collected from a sample of South Korean firms listed on the Korean Composite Stock Price Index for the years between 2013 and 2020. Tools: Multiple panel data regressions and robustness tests were conducted. Propensity score matching is also used to minimize endogeneity related problems. Findings: Firms are more likely to manage their earnings upward subsequent to significantly missing analysts’ expectations. However, their tendency to avoid taxes is lower. Contribution: Little has been explored on how firms significantly missing analysts’ expectations could behave in the subsequent period. The findings reported in this study have important implications for regulators, investors, and auditors. This research is also different from most prior related studies in terms of its setting.

경영자의 과신성향과 자발적 예측공시

[Purpose]Managers’ personal characteristics play an important role in corporate decision－making. Overconfidence, one of the personal characteristics of managers, refers to the tendency to overestimate managers’ own abilities and the probability of positive events happening to them. Therefore, overconfident CEOs are likely to overestimate the returns to their investment projects and to misperceive a negative net present value project as value creating. This study, therefore, examines whether overconfident CEOs are more likely to issue a management forecast. We also investigate whether CEO overconfident is related to the accuracy of forecast.
 [Methodology]Our sample consists of 6,310 firm－year observations of firms listed on the Korean Composite Stock Price Index (KOSPI) market of the Korea Exchange (KRX) for the period from 2003 to 2015. We measure CEO overconfidence using empirical measure that has been developed by Ahmed and Duellman (2013) and Schrand and Zechman (2012).
 [Findings]We find that CEO overconfidence is positively associated with the likelihood of issuing a management forecast. In addition, we find that overconfidence is negatively related to the accuracy of management forecasts. These findings imply that overconfident CEOs are more likely to issue a management forecast and that their forecasts are less accurate.
 [Implications]Our study contributes to our understanding of why some managers voluntarily issue forecasts while others do not. The result of this study implies that overconfidence, among the personal characteristics of managers, affects the motivation for voluntary management forecasts. In addition, the result that overconfident CEOs issue less accurate forecasts supports prior studies that CEO overconfidence is a potential factor that can hinder the optimal corporate decision－making.

Random walk model and asymmetric effect in Korean composite stock price index

This paper empirically examines the market efficiency and the volatility persistence of weekly stock returns of the Korean composite stock price index (KOSPI) since July 1997 till September 2016. It studies the market efficiency in presence of both linear and nonlinear dependence in the stock price series along with testing for structural breaks. By employing various econometric tests, evidence of weekly series not following a random walk model along with asymmetric volatility effects was found. The results have significant implications for investors and traders as market inefficiency can impact both domestic and foreign flows in an economy. This study is unique as it employs multiple tests for market efficiency along with examining volatility persistence over a wide time frame of almost two decades. Since the results on market efficiency are mixed for the Korean stock market this study aims to offer a more comprehensive picture.

Random walk model and asymmetric effect in Korean composite stock price index

Random walk model and asymmetric effect in Korean composite stock price index

The GARCH-GPD in market risks modeling: An empirical exposition on KOSPI

Risk analysis is a systematic study of uncertainties and risks we encounter in busi-ness, engineering, public policy, and many other areas. Value at Risk (VaR) is one of the most widely used risk measurements in risk management. In this paper, the Ko-rean Composite Stock Price Index data has been utilized to model the VaR employing the classical ARMA (1,1)-GARCH (1,1) models with normal, t, generalized hyperbolic, and generalized pareto distributed errors. The aim of this paper is to compare the performance of each model in estimating the VaR. The performance of models were compared in terms of the number of VaR violations and Kupiec exceedance test. The GARCH-GPD likelihood ratio unconditional test statistic has been found to have the smallest value among the models.

A causality between fund performance and stock market

We investigate whether the characteristic fund performance indicators (FPI), such as the fund return, the Net asset value (NAV) and the cash flow, are correlated with the asset price movement using information flows estimated by the Granger causality test. First, we find that the information flow of FPI is most sensitive to extreme events of the Korean stock market, which include negative events such as the sub-prime crisis and the impact of QE (quantitative easing) by the US subprime and Europe financial crisis as well as the positive events of the golden period of Korean Composite Stock Price Index (KOSPI), except for the fund cash flow. Second, both the fund return and the NAV exhibit significant correlations with the KOSPI, whereas the cash flow is not correlated with the stock market. This result suggests that the information resulting from the ability of the fund manager should influence stock market. Finally, during market crisis period, information flows between FPI and the Korean stock market are significantly positively correlated with the market volatility.

Threshold network of a financial market using the P-value of correlation coefficients

Threshold methods in financial networks are important tools for obtaining important information about the financial state of a market. Previously, absolute thresholds of correlation coefficients have been used; however, they have no relation to the length of time. We assign a threshold value depending on the size of the time window by using the P-value concept of statistics. We construct a threshold network (TN) at the same threshold value for two different time window sizes in the Korean Composite Stock Price Index (KOSPI). We measure network properties, such as the edge density, clustering coefficient, assortativity coefficient, and modularity. We determine that a significant difference exists between the network properties of the two time windows at the same threshold, especially during crises. This implies that the market information depends on the length of the time window when constructing the TN. We apply the same technique to Standard and Poor’s 500 (S&P500) and observe similar results.

Price Movement After an Information Event Detected by a New Measure of Private Information Ratio

ABSTRACTThe private information ratio (PIR) is measured by a ratio of abnormal returns of a security, which represents security-j-specific information to the unexpected return of equally weighted Korean Composite Stock Price Index (KOSPI) representing broad stock market information. Price movements after a large price movement are examined in two cases: large security-j-specific information for the top (bottom) 10 percent of the PIR distribution and large market-wide information between 40 and 60 percent of the PIR distribution. Two types of cumulative abnormal returns, and , are computed to see price movements after event days. More supports for return continuations than for return reversals are found, leading to more support for market efficiency.

An information flow among industry sectors in the Korean stock market

We investigate the information flow among 22 industry sectors in the Korean stock market by using the symbolic transfer entropy (STE) method. We consider the daily index of 22 industry sectors in the Korean Composite Stock Price Index (KOSPI) from January 3, 2000 to March 30, 2012. We measure the degree of asymmetry in the information flow and the amount of information flow among the industry sectors before, during, and after the subprime crisis in order to analyze how to relate them to the market crisis. We find that the amount of information flow and the number of connectedness during the financial crisis in the Korean stock market are higher than those before and after the market crisis. In addition, we find the role of the insurance sector, which is related to risk management, increases as information source after the crisis.

Stock price direction prediction by directly using prices data: an empirical study on the KOSPI and HSI

The prediction of a stock market direction may serve as an early recommendation system for short-term investors and as an early financial distress warning system for long-term shareholders. Many stock prediction studies focus on using macroeconomic indicators, such as CPI and GDP, to train the prediction model. However, daily data of the macroeconomic indicators are almost impossible to obtain. Thus, those methods are difficult to be employed in practice. In this paper, we propose a method that directly uses prices data to predict market index direction and stock price direction. An extensive empirical study of the proposed method is presented on the Korean Composite Stock Price Index (KOSPI) and Hang Seng Index (HSI), as well as the individual constituents included in the indices. The experimental results show notably high hit ratios in predicting the movements of the individual constituents in the KOSPI and HIS.

Characteristics of Traded Volume in the Korean Composite Stock Price Index

Characteristics of Traded Volume in the Korean Composite Stock Price Index

The role of stochastic volatility and return jumps: reproducing volatility and higher moments in the KOSPI 200 returns dynamics

This paper investigates the role of stochastic volatility and return jumps in reproducing the volatility dynamics and the shape characteristics of the Korean Composite Stock Price Index (KOSPI) 200 returns distribution. Using efficient method of moments and reprojection analysis, we find that stochastic volatility models, both with and without return jumps, capture return dynamics surprisingly well. The stochastic volatility model without return jumps, however, cannot fully reproduce the conditional kurtosis implied by the data. Return jumps successfully complement this gap. We also find that return jumps are essential in capturing the volatility smirk effects observed in short-term options.

Scaling and Multiscaling Properties in the Korean Stock Market

We consider the scaling and the multiscaling behaviors of the Korean stock-market index. We consider the return and the absolute return of Korean composite stock price index (KOSPI). We observed scaling behaviors in the tail parts of the probability distribution of the return and in the autocorrelation function of the absolute return. At early time, the autocorrelation function of the return decays exponentially with a characteristic time of 5.9 min. However, the absolute return reveals a long-range correlation. The generalized q-th order height-height correlation functions show multiscaling properties. There are two scaling regions, with a crossover time of tc = 40 min. The multiscaling in the long-time region appears to be due to intrinsic trading properties of the stock market.

Is it important to consider the jump component for pricing and hedging short-term options?

The usefulness of the jump component for pricing and hedging short-term options is studied for the KOSPI (Korean Composite Stock Price Index) 200 Index options. It is found that jumps have only a marginal effect and stochastic volatility is of the most importance. There is evidence of jumps in the underlying index but no evidence of jumps in the corresponding index options. However, these results may not be valid for individual equity options. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:989–1009, 2005

Change of Stock Earning Rate on Korean Quality Award Recipients

The purpose of this research is to understand the effects of Quality Management Award on stock prices movement and to examine the comparative advantages of quality award system in Korea and the US. This study compares the performances of QM Award companies in the stock market with those of the market index in both countries. We develop Korean Quality Award Index (KQA Index) based on the Baldridge Index of NIST in the US. We inspect three studies. Study 1 tests if the performance of MB Award winners and S&P500 index have a difference in the stock market. Study 2 tests if the performances of KQA winners and KOSPI (Korean Composite Stock Price Index) have a difference in the stock market. Study 3 tests if the performances of KQA winners and MB Award winners have a difference in the stock market. From the empirical tests, the performances of KQA winners are superior to those of KOSPI and performances of MB Award winners are superior to those of S&P500 and the performance of MB Award winners are superior to those of KQA winners.

Market segmentation and time variation in the price of risk: Evidence on the Korean stock market

This study examines the time-varying behavior of the risk premiums in the Korean equity market and investigates the impact of capital controls on the pricing of Korean equities. Using a bivariate GARCH-M model that allows for the time-variation in the price of risk, the conditional expected excess returns are estimated for the Korean Composite Stock Price Index and the Morgan Stanley Capital International world index between 1980 and 1990. While the Korean market commands higher risk premiums than the world market, there is some evidence in the later sample period that these premiums decline after announcements of capital control relaxation, as one would expect if the Korean market is becoming more integrated to the world capital market. It is also shown that the structure of the Korean equity market is consistent with the predictions of the “mild segmentation” hypothesis where both domestic and international factors are important in explaining the excess returns of Korean equities.