The Korean stock market volatility during the currency crisis and the credit crisis

Jaeho Cho and Byoung Hark Yoo ()

Japan and the World Economy, 2011, vol. 23, issue 4, 246-252

Abstract: This paper studies the volatility of the Korean stock market during the Asian currency crisis of 1997–1998 and the global credit crisis of 2008–2009. We use a fad model with Markov switching heteroskedasticity, which was first proposed by Kim and Kim (1996). Using the monthly data from January 1980 to October 2009, we find that the volatility of the transitory component of the stock return, or fads, increased during the currency crisis, but did not rise much during the credit crisis. It implies that the stock price fluctuations were not driven by irrational sentiments during the recent global crisis as much as during the former crisis. However, when we consider the dollar value of the Korean stock index in order to estimate the volatility that foreign investors confront, we find that the volatility of the transitory component was raised during the credit crisis as well as during the currency crisis. That is, foreign investors experienced greater volatility than domestic investors in the recent financial market turmoil. This asymmetric volatility that domestic and foreign investors face is one of the characteristics of the credit crisis.

Keywords: Korean stock market volatility; Currency crisis; Credit crisis; Fad model; Markov switching heteroskedasticity (search for similar items in EconPapers)
JEL-codes: C22 G1 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:23:y:2011:i:4:p:246-252

DOI: 10.1016/j.japwor.2011.09.003

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