Korea Stock Market Research Articles

Enhancing stock market trend reversal prediction using feature-enriched neural networks

According to several previous studies, neural network-based stock price predictors perform better for plunging patterns of stock prices than normal stock price patterns. Focusing on this issue, this study proposes a novel method that uses a neural network-based stock price predictor to predict the upward trend-reversal of the plunging market itself. To achieve more consistent prediction results for plunging patterns, newly designed input features are added to improve the performance of traditionally used neural network-based predictors. The statistics of the prediction scores for past plunging markets and analyzed, and the results are used to predict the upward trend-reversal in the plunging market that occurred during the test period. We demonstrate the superiority of the proposed method through the simulation results of 3-year trading on KOSDAQ, a representative stock market in South Korea.

Practical Application of Deep Reinforcement Learning to Optimal Trade Execution

Although deep reinforcement learning (DRL) has recently emerged as a promising technique for optimal trade execution, two problems still remain unsolved: (1) the lack of a generalized model for a large collection of stocks and execution time horizons; and (2) the inability to accurately train algorithms due to the discrepancy between the simulation environment and real market. In this article, we address the two issues by utilizing a widely used reinforcement learning (RL) algorithm called proximal policy optimization (PPO) with a long short-term memory (LSTM) network and by building our proprietary order execution simulation environment based on historical level 3 market data of the Korea Stock Exchange (KRX). This paper, to the best of our knowledge, is the first to achieve generalization across 50 stocks and across an execution time horizon ranging from 165 to 380 min along with dynamic target volume. The experimental results demonstrate that the proposed algorithm outperforms the popular benchmark, the volume-weighted average price (VWAP), highlighting the potential use of DRL for optimal trade execution in real-world financial markets. Furthermore, our algorithm is the first commercialized DRL-based optimal trade execution algorithm in the South Korea stock market.

ON THE RELATIONSHIP BETWEEN ECONOMIC POLICY UNCERTAINTY, GEOPOLITICAL RISK AND STOCK MARKET RETURNS IN SOUTH KOREA: A QUANTILE CAUSALITY ANALYSIS

In this research, we assess the influence of geopolitical risk (GPR), exchange rate (EXCH) and economic policy uncertainty (EPU) on South Korea stock market. Using monthly dataset covering the period from 1997 to 2021, we utilized the novel non-parametric causality-in-quantiles test initiated by Balcilar et al. (2017) to assess these associations. This study discovered that the effect of macroeconomic shocks in South Korea is diverse across the stock market, implying that the influence of these shocks is not consistent across the stock market in South Korea. Furthermore, this study revealed that the causal influence of EPU, GPR on the stock market is visible in mean and variance. Nonetheless, the causal influence of EXCH on the stock market can only be seen in the mean, with no indication of causation in the variance. We consider that these results are significant to South Korean stock market investors for the purposes of foreign portfolio diversification and establishing investing strategies during times of economic uncertainty.

Impacts of Tightening Monetary Policy on the stock market in Korea

Impacts of Tightening Monetary Policy on the stock market in Korea

The dynamics of cryptocurrency market behavior: sentiment analysis using Markov chains

PurposeThe authors examine cryptocurrency market behavior using a hidden Markov model (HMM). Under the assumption that the cryptocurrency market has unobserved heterogeneity, an HMM allows us to study (1) the extent to which cryptocurrency markets shift due to interactions with social sentiment during a bull or bear market and (2) the heterogeneous pattern of cryptocurrency market behavior under these two market conditions.Design/methodology/approachThe authors advance the HMM model based on two six-month datasets (from November 2017 to April 2018 for a bull market and from December 2018 to May 2019 for a bear market) collected from Google, Twitter, the stock market and cryptocurrency trading platforms in South Korea. Social sentiment data were collected by crawling Bitcoin-related posts on Twitter.FindingsThe authors highlight the reaction of the cryptocurrency market to social sentiment under a bull and a bear market and in two hidden states (an upward and a downward trend). They find: (1) social sentiment is relatively relevant during a bull compared to a bear market. (2) The cryptocurrency market in a downward state, that is, with a local decreasing trend, tends to be more responsive to positive social sentiment. (3) The market in an upward state, that is, with a local increasing trend, tends to better interact with negative social sentiment.Originality/valueThe proposed HMM model contributes to a theoretically grounded understanding of how cryptocurrency markets respond to social sentiment in bull and bear markets through varied sequences adjusted for cryptocurrency market heterogeneity.

Who Benefitted From the PyeongChang Olympic Announcement? Evidence From the South Korean Stock Market

Understanding the market effects of Olympic host announcements is popular in academic research. Contrary to prior studies, announcing PyeongChang as the 2018 host had a positive effect on South Korea's Stock Market, with conservative estimates suggesting a peak of +3.8% during the 15 trading days post announcement (an increase equivalent to $34.962 billion). The degree to which firms benefitted varied by industry and lifecycle stage. Older and lower-growth financial and information technology firms saw larger abnormal returns compared to other firms. These findings suggest that academics and investors pay greater attention to idiosyncratic price adjustments to systematic market shocks.

The impact of COVID-19 pandemic shock on major Asian stock markets: evidence of decoupling effects

Introduction. Despite the start of the outbreak of the virus (COVID-19) was in December 2019, stock markets did not respond immediately as there was little information about the expected duration of the crisis and whether China would be able to contain it within a short period of time, and the risks entailing to the global economy due to the virus spread becoming pandemic that endanger the global health situation. As a result of the great uncertainty that prevailed among investors in the third week of February, stock markets around the world incurred trillions of US dollars in losses in a single week (ending February) seen as the worst week for financial markets since the 2008 global financial crisis. The initial purpose of this paper is to assess the reaction of major Asian stock markets to the early outbreak of COVID-19 pandemic and its spillover effects among these markets. Material and methods. To capture switching behavior of major Asian stock markets due to the early outbreak of COVID-19, the paper uses daily price indexes of Shanghai composite, Hong Kong, Nikkei 225, and Korea stock market, during the period from December 2, 2019 to March, 13,2020. Markov switching dynamic regression (MSDR) employed to assess the behavior of each market to the response of the other markets’ behavior. Results. Our finding indicate evidence of two states that distinguish the behavior of the stock markets during the early outbreak of the pandemic. In state 1, when the significance of the pandemic was not fully realized there was a strong link and influence between these markets, but in state 2, when the scale and size of the pandemic realized these markets displayed decoupling behavior. Results also indicate, Hong Kong and Nikkie stock markets were the epicenter in both states. The impact of the pandemic news on the behavior of these markets as indicated by the transition probabilities of state 2, varied from 3 days duration effect (Hong Kong) to 3month duration effect (Nikkei 225). Discussion and conclusions. The interactive association between these stock markets is important for investors as well as for policy-makers. Increasing departure of stock prices from their fundamental driver, that is the common economic bonds linking these markets, implies increasing risk for investors in these stock markets. The duration of the shock as indicated by the transition probabilities show that Hong Kong stock exchange was the most resilient in the group, while Nikkei was the most reactive to the pandemic shock.

Idiosyncratic volatility and interruption mechanisms in South Korean stock markets

PurposeThe purpose of this study is to examine how the volatility interruption (VI) mechanisms affect idiosyncratic volatilities in Korean stock markets.Design/methodology/approachCollecting the South Korea Stock Market (KOSPI) data from June 15, 2015 to March 31, 2019, we collect each residual, , from three different estimated models: capital asset pricing model (CAPM), FF3 and FF5. To estimate the conditional idiosyncratic volatility, the authors employ two conditional time-varying measurements: GARCH and TGARCH.FindingsThe results show that the conditional idiosyncratic volatility increases when stock prices reach the upper and lower static limits, indicating the implementation of adopting static VI mechanism neither stabilize market conditions nor reduce excess volatility along with the existence of price limits.Originality/valueAlthough market regulators and policymakers improve market conditions with the advanced VI mechanism, the empirical results show the adverse effect of the mechanism. Not allowing investors to earn above average returns without accepting above average risks makes Korean stock markets inefficient along with advanced VI mechanisms.

The Effect of the COVID-19 Pandemic on South Korea's Stock Market and Exchange Rate.

This study examines COVID‐19 pandemic effects on the stock market and exchange rate of South Korea. With daily data from January 2, 2019 to August 31, 2020, we show that a new infection spike increases stock price index volatility and decreases foreign investors' holdings of domestic stocks, and indirectly leads to the depreciation of the South Korean won. We indicate that investors may have repurchased the South Korean won seven days after an infection spike, thereby slightly increasing its value. We also find that the Bank of Korea's foreign exchange intervention had a short‐run effect with a limited impact. The intervention did not have a significant effect on exchange rate volatility.

Price Movements around Short Covering Trades

Using reported large short position data from Korea stock market, we studied stock price movements around the short covering trades. We found a significant negative relationship between the short covering trades and the stock return on the previous five trading days. trading days. It means that short sellers engage in contrarian trading when they cover short positions. Short coverings are associated with positive returns on the trading day, confirming that there is a positive transient price impact at the coverings of large short positions. We also found that stock prices decline steadily in the 60 trading days following short coverings. This indicates that some short sellers are forced to prematurely close out their positions, thus suffering opportunity losses. Particularly, when a sudden surge in stock prices causes involuntary large-scale short coverings to occur in the short squeeze, the price impact gets larger and short sellers bear greater opportunity losses. This study sheds light on short selling strategies in practice and market stabilizing policies. Key words: Short Covering; Contrarian; Price Impact; Timing Ability; Short Squeeze JEL Classification: G10, G14

The Irrational Behavior of Korea Stock Market and The Role of Public Information: Evidence from Mass Media in Korea

The Irrational Behavior of Korea Stock Market and The Role of Public Information: Evidence from Mass Media in Korea

한국과 미국의 주식시장과 금리간의 상관성 및 인과성 비교 연구

한국과 미국의 주식시장과 금리간의 상관성 및 인과성 비교 연구

Investigating the Impact of IT Security Investments on Competitor’s Market Value: Evidence from Korea Stock Market

If a firm announces an investment in IT security, how the market value of its competitors reacts to the announcement? We try to shed light on this question through an event study design. To test the relationship, we collected 143 announcements on cybersecurity investment and measured the subsequent impact on 533 competitors’ abnormal returns, spanning from 2000 to 2019. Our estimation results present that, on average, the announcements have no observable impact on the market value of announcing firms and competitors as well, which is consistent with findings of a prior study. Interestingly, however, the impact becomes evident when we classify our samples by industries (Finance vs. non-Finance or ICT vs. non-ICT) and firm size (Big vs. Small). We interpret our empirical findings through the lenses of contagion effect and competition effect between announcing firms and their competitors. Key finding of our study is that, for financial service firms, the effect resulting from the announcement on cybersecurity investment transfers to competitors in the same direction (i.e., contagion effect).

The Determinants of Blockholder Presence: Evidence from Korea

The purpose of this study is to investigate the determinants of blockholder presence in the Korean stock market. This study examines previous theories and studies, points that previous studies did not examine, and proposes two hypotheses. To verify two hypotheses, fundamental data were collected from firms listed on Korea Exchange from 2005 to 2017. As explanatory variables, we use the factors and characteristics of the firms used in the previous studies. Logistic regression analysis was conducted to test the determinants of blockholder presence. We find that firm size is the most distinctive factor determining the presence of blockholder, and firm idiosyncratic risk is the most similar factor determining the existence of each blockholder. Tobin Q shows significant value in family and government, and R&D intensity appears to be a negative related to the presence of blockholder in financial institutions. We also find that the determinant of blockholder presence differs from the mechanisms that govern each individual blockholder type when all blockholders grouped together. This suggests that there is blockholder heterogeneity within Korea listing firms. Our findings contribute to investors and policy makers who interested in the determinants of the presence of blockholder and blockhoder heterogeneity in Korea stock market.

CoVaR를 이용한 주식시장 리스크 변동에 관한 연구 - 한국과 중국 주식시장 비교 -

CoVaR를 이용한 주식시장 리스크 변동에 관한 연구 - 한국과 중국 주식시장 비교 -

Towards a More Transparent Disclosure for Corporate Sustainability: Focusing on the Regulation of Unfaithful Disclosure Designation

This study explored the effect of corporate governance on disclosure transparency, coming from the changes of the largest shareholder and the designation as an unfaithful disclosure firm. In addition, the study verified whether this designation on a firm increases voluntary disclosure level the following year. According to results of analyzing nonfinancial firms listed in the Korea stock market from 2009 to 2017, the more frequently the largest shareholder changed in the recent three years, the significantly higher the possibility of the firm in being designated as an unfaithful disclosure firm. For firms that were designated as unfaithful disclosure firms, voluntary disclosure significantly increased the following year. These results were strengthened by the addition of several more analyses including quality of management forecasts, consideration of fixed-effects regression and the mediation modeling. These results imply the necessity for the supervision of authorities to take caution, while it shows the effectiveness of the unfaithful disclosure designation regulation in improving disclosure transparency.

A Study on the Mutual Influence of the Stock Fund Provisions and Stock Market in Korea

A Study on the Mutual Influence of the Stock Fund Provisions and Stock Market in Korea

Institutional investors and stock market volatility. Evidence from Korea

ABSTRACT This article examines the impact of institutional investors on return volatility in Korea stock market from 4 January 2000 to 15 September 2017 using actual trading data. We find that net purchases of institutions increase the market level of volatility but find no evidence that trades by institutional investors had a destabilizing impact on Korea’s equity market over our sample period.

ECOWAS 회원국의 부가가치세 세입 결정요인에 관한 연구

ECOWAS 회원국의 부가가치세 세입 결정요인에 관한 연구

한국, 미국, 유럽, 중국에서의 주식시장과 무역수지 상호간의 영향력 검정

한국, 미국, 유럽, 중국에서의 주식시장과 무역수지 상호간의 영향력 검정