HomeArticlesServicePriceAbout

This study examines the degree of co-movement between the Korean stock market and the markets of the United States, Japan, and China. It analyzes key factors influencing these relationships using industry-level data from 2003 to 2016, applying an international capital asset pricing model (ICAPM).

1. Changes in Co-Movement After the Global Financial Crisis

Decreased correlation with the U.S. and Japan:

• After the 2008–2009 global financial crisis, the correlation between the Korean stock market and those of the U.S. and Japan weakened.

• This suggests that Korea’s economic ties with these countries became less influential, or that external factors had less impact on the Korean market.

Increased correlation with China:

• The Korean stock market’s correlation with the Chinese market strengthened post-crisis.

• This reflects growing economic interdependence between Korea and China, driven by increased trade and investment flows.

2. Trade Linkages as the Primary Driver of Co-Movement

• Trade volume between Korea and other countries was identified as the main determinant of stock market co-movements.

• Higher trade dependency on a particular country leads to stronger co-movements with its stock market.

• Export-driven industries show greater sensitivity to the economic conditions of key trade partners.

3. Limited Influence of Financial Linkages

• Foreign stock investment did not significantly impact market co-movements.

• Institutional investors appear to focus more on fundamental valuations rather than short-term market trends.

• Short-term speculative trading by foreign investors likely reduces the impact of capital flows on long-term co-movement trends.

4. Industry-Specific Differences

• The study analyzed 24 manufacturing industries and found variations in co-movements based on trade dependency.

• Industries highly dependent on Chinese exports exhibited stronger correlations with the Chinese stock market.

5. Policy Implications

• Over-reliance on a single country for trade can increase market instability.

• Diversifying trade relationships is crucial to reducing vulnerability to external economic shocks.

• Financial policymakers should monitor global trade patterns to mitigate risks associated with concentrated trade dependencies.

Additional Insights

• The study applied ICAPM to assess the global integration of Korea’s stock market.

• Results highlight the growing economic interdependence between Korea and China, particularly post-2008.

• The findings emphasize the importance of trade diversification to ensure market stability.

[Compliance Note]

• All posts by Sellsmart are for informational purposes only. Final investment decisions should be made with careful judgment and at the investor’s own risk.

• The content of this post may be inaccurate, and any profits or losses resulting from trades are solely the responsibility of the investor.

• Core16 may hold positions in the stocks mentioned in this post and may buy or sell them at any time.