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Understanding stock market volatility : The case of Korea and Taiwan

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  • Understanding stock market volatility
  • Hong Kong University of Science and Technology


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Title Understanding stock market volatility
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Sub Title

The case of Korea and Taiwan

Material Type Reports
Publisher

[Kowloon] : Hong Kong University of Science and Technology

Date 2015
Pages 39
Subject Country South Korea(Asia and Pacific)
Taiwan(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Administration
Economy < Economic System
Holding HKUST
License

Abstract

The Taiwanese stock market has historically been considerably more volatile than the Korean market. This is somewhat surprising given the many similarities of the two markets. One notable difference between the two markets is that trading volume is substantially higher in Taiwan, leading some to believe that the higher volatility in Taiwan is a result of “excessive” speculation. The evidence presented in this paper is somewhat mixed. First, we find no evidence of mean-reversion in the stock market index in either country. Second, we find that Taiwanese stock returns are much more correlated with their earnings than are Korean returns both over time and cross-sectionally. However, during 1987, 1989 and 1990, when Taiwanese stocks experienced extremely large price movements, the cross-sectional correlations between stock returns and earnings were very low, suggesting that at selected times, Taiwanese stock price may have deviated from their fundamental values.