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The more connected, the better? : New evidence of connectedness' impact on volatility and price discovery focused on the Korean financial sector

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  • The more connected, the better?
  • Jeong, Deokjong; Park, Sunyoung
  • Korea Advanced Institute of Science and Technology


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Title The more connected, the better?
Similar Titles
Sub Title

New evidence of connectedness' impact on volatility and price discovery focused on the Korean financial sector

Material Type Reports
Author(English)

Jeong, Deokjong; Park, Sunyoung

Publisher

[Daejeon, South Korea]:Korea Advanced Institute of Science and Technology

Date 2016-03
Pages 45
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Administration
Economy < Economic System
Holding SSRN

Abstract

This paper empirically analyzes one particular channel through which the increasing connectivity among finance companies can do harm to the Korean financial market: it can worsen the price-discovery process in the equity market. Our analysis is based on the Korean financial sector from 1990 to July 2015, including the period of the 1997 Asian crisis and the 2007-8 U.S. Financial crisis. By 'densely connected', we specifically refer to the case in which a node experiences strong lagged return spillover from and/or to itself. With data spanning the entire financial sector, we show that the more densely connected a particular financial institution is, the more volatile stock price and the less accurate stock price quality becomes. Hence we establish connectedness as an important determinant of stock price discovery. (The rest omitted)

User Note

The 10th annual conference on Asia-Pacific financial markets of the Korean Securities Association