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http://dx.doi.org/10.29214/damis.2020.39.3.005

The Irrational Behavior of Korea Stock Market and The Role of Public Information: Evidence from Mass Media in Korea  

Son, Pando (Dept. of Business Administration, Dong-a University)
Lee, Hyeong ki (Korea Financial Investment Association)
Publication Information
Management & Information Systems Review / v.39, no.3, 2020 , pp. 83-98 More about this Journal
Abstract
This study analyzes how investors' irrational behavior (or pessimistic sentiment) affects stock market returns and investors' market activity using mass media that delivered public information from January 1998 to December 2012 as a sample. According to pessimistic investor theory, investor pessimism leads to downward pressure on the price of equity capital, thereby making market sentiment pessimistic and lowering market yields. It also shows that investor pessimism increases transaction costs in the market, which in turn dampens investors' trading activities. In other words, pessimistic reporting on public information disseminated by mass media induces investors to act irrationally, eventually having a direct impact on the stock market. This study conducted an empirical analysis of the existing theoretical and empirical studies using domestic mass media as a sample. First, the study revealed a negative correlation between pessimistic reporting and returns as well as excess returns, while it did not show statistically significant results. Second, evidence has been suggested that pessimistic sentiment in the stock market has a negative impact on future pessimistic reporting by mass media. Third, the analysis of the impact of pessimistic reporting on investors' market activity using proxy variables for various market activities found that pessimism dampens market activity, while it did not show statistically significant results. It is assumed that low statistical significance is due to the fact that sample collection was carried out on a monthly basis. While the results of the study have low statistical significance, statistical signs support predictions of the theory.
Keywords
Economic News; Investment Decision; Irrational Behavior; Stock Market Returns;
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