This paper examines the evolution of risk for Korean financial companies by estimating and decomposing the expected excess return volatility of the Korean financial sector. It analyzes the trend in volatility in the financial industry over time, as well as the relationship between financial sector volatility and economic activity.
Financial sector volatility increased after the 1997 currency crisis then decreased after the period of IMF supervision, consistent with the hypothesis that volatility rises when financial markets are destabilized. We were, however, unable to establish evidence of a long-term trend in financial sector volatility over time, nor were we able to observe that changes in volatility influence economic activity.
Although financial sector risk outweighs idiosyncratic risk in U.S financial companies, the former is much greater than the latter in Korean ones. Korean financial firms are therefore more vulnerable to common factor risk.
금융업의 위험변화에 관한 연구(An empirical study on the evolution of risk in the Korean financial sector)
|Series Title; No||금융조사보고서 / 2009-07|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|