Do S&P 500 and KOSPI Move Together?: A Functional Regression Approach

Soobin Kim and Chang Sik Kim

Korean Economic Review, 2010, vol. 26, 401-430

Abstract: This paper explores the return comovement between Korean and U.S. stock markets by investigating the existence of a possible spillover effect using high frequency data. We employ a functional regression methodology to scrutinize the moment dependence and the components of possible spillover effects. We find that the mean, volatility, skewness, and kurtosis spillover effects exist and the components of those effects have not changed over time in 2002-2006. In sum, we conclude that the KOSPI and S&P 500 move together during the sample period. The conclusion, however, is weakened once we modified the data by excluding the opening price of KOSPI since we only find the volatility spillover effect during the same period. Therefore, we can conclude that the opening price of Korean stock market may reflect new information that occurred overnight in foreign markets so that moment dependencies or moment spillover effects are weakened between Korean and U.S. stock market.

Keywords: Stock Market Comovement; Spillover Effect; Market Efficiency; Functional Regression; Moments Dependency (search for similar items in EconPapers)
JEL-codes: C12 C22 F30 G14 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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