• KDI Journal of Economic Policy
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• v.24 no.2
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• pp.83-119
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• 2002

In this paper, we study the relationship between the U.S. daily stock returns and the corresponding Korean returns. More specifically, we examine whether the previously realized U.S. stock returns would help predict the current Korean returns. We find that for dose-to-close daily stock returns, the U.S. returns would help predict the Korean returns. However, for open-to-close stock returns, the U.S. intraday stock returns would not help predict the corresponding Korean returns. After distinguishing investors by their nationality and types, we then examine whether there is a relationship between investors' net purchase of Korean stocks and the previous days' U.S. stock returns. We find that the amount of international investors' net purchase of Korean stocks today would vary significantly with the previous days' U.S. stock returns. The Korean individual investors and the Korean investment trust companies, however, would follow the opposite investment pattern.

• Asia-Pacific Journal of Business
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• v.13 no.1
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• pp.167-183
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• 2022

Purpose - The purpose of this study is to show the need to use the past long-term returns for investment decisions in U.S. equity funds and to suggest an investment strategy using long-term returns. Design/methodology/approach - This study solves the problem of high return volatility in long-term returns and proposes new investment portfolios based on the behavior of fund investors according to past returns. For the investment portfolio of this study, 60 months are divided into several periods and the average of the performance ranks for each period is used. Findings - First, funds with high average returns over multiple periods have lower future outflows and higher future returns than funds with high 60-month cumulative returns. Second, funds with low average returns over multiple periods have lower future inflows and lower future returns than funds with low 60-month cumulative returns. The findings mean that when making decisions based on past long-term returns, it is a smarter investment choice to buy funds with high average returns over multiple periods and sell funds with low average returns over multiple periods. Research implications or Originality - This study shows that it is necessary to use long-term returns in fund investment by analyzing the characteristics of the portfolio based on past returns. In addition, the study is meaningful in that it suggests a way to use long-term returns more efficiently based on the behavior of fund investors and shows that such investments lead to higher returns in the future.

• Asia-Pacific Journal of Business
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• v.14 no.3
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• pp.45-66
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• 2023

Purpose - This paper examines whether overnight returns and idiosyncratic volatility (IVOL) jointly affects the cross-section of expected stock returns in the Korean stock market. Design/methodology/approach - Constructing 5×5 bivariate monthly portfolios independently sorted on overnight returns and IVOL, this paper tests whether overpricing of stocks with high overnight returns is more pronounced for the stocks that also have high IVOL. In addition, we also investigate whether time-variation in the degree of overpricing for those stocks can be explained by market volatility. Findings - Our results show that stocks having both high overnight returns and high IVOL exhibit strong negative returns in the future. In contrast, we are unable to observe such negative returns for the stocks that have high overnight returns and low IVOL. This suggests that overpricing of stocks with high overnight returns is concentrated for the stocks having high IVOL. Moreover, we also find that the degree to which such stocks are overpriced is negatively related to market volatility. Research implications or Originality - his paper is the first attempt to explore whether degree of overpricing of stocks having high overnight returns is related to IVOL. We also discover time-varying property of overpricing is jointly driven by overnight returns and IVOL. Our results indicate that IVOL might help explain other previously documented stock return anomalies, suggesting interesting topics for future research.

• Management & Information Systems Review
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• v.25
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• pp.83-114
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• 2008

We examine whether spinoffs improve long-run stock returns and analyze the factors of long run stock returns. The measures of long run stock returns are CAR(Cumulative Abnormal Returns) and BHAR(Buy and Hold Abnormal Returns). The expected factors of abnormal returns are methods of spinoffs, size, BV/MV, administrative costs, cashflow and Herfindahl index. We find that long-run returns of the case such as carve-out methods, small size, high BV/MV, low administrative costs, low cashflow and low Herfindahl index are larger than those of other cases. We show positive relationship between spinoffs and long-run stock returns(CAR and BHAR). The results supports spinoffs, as the methods of focusing on core business, are very usefulness of corporate restructuring.

• The Journal of Industrial Distribution & Business
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• v.11 no.5
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• pp.7-16
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• 2020

Purpose: Prior studies empirically examine how financial flexibility is related to required returns by using realized returns and considering cash holdings as net debts, but they fail to find consistent results. Conjecturing that inappropriate proxy of required returns and aggregation of cash and debts caused the inconsistent results, this study revisits this topic by using a refined proxy of required returns and separating cash holdings from debts. Research design, data and methodology: This study uses a multivariate regression model to investigate the relationship between required returns on cash holdings and financial leverage. The required returns are estimated using the return decomposition method by vector autoregression model. Empirical tests use US stock market data from1968 to 2011. Results: Empirical results reveal that both cash holdings and leverage are positively related to required returns. The positive relation is stronger in economic downturns than in economic upturns. Conclusions: Three major findings are drawn. First, risky firms prefer large cash balance. Second, information shocks in the realized returns caused failure of prior studies to find consistent positive relationship between leverage and realized returns. Third, cash and leverage are related to required returns in the same direction; therefore, cash cannot be considered as negative debts.

• Asia-Pacific Journal of Business
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• v.11 no.4
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• pp.243-254
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• 2020

Purpose - This paper explores whether overnight returns measured from the last closing price to today's opening price explain the cross-section of stock returns. Design/methodology/approach - This study is conducted using the Korean stock market data from 1998 to 2018, obtained from DataGuide database. The analysis begins with portfolio-level tests, followed by firm-level cross-sectional regressions. Findings - First, when decile portfolios sorted on the daily average of overnight returns in the previous months, the highest decile portfolio exhibits a significant negative risk-adjusted return. This suggests that stocks with higher average overnight returns are temporarily overvalued due to buying pressure from investors. Second, at least 6 months of persistence exists in average overnight returns, which is in line with the results reported by Barber, Odean and Zhu (2009) that investor sentiment persists over several weeks. Finally, Fama-MacBeth cross-sectional regression of expected returns after controlling for a variety of firm characteristic variables such as firm size, book-to-market ratio, market beta, momentum, liquidity, short-term reversal, the slope coefficient for overnight returns remains negative and statistically significant. Research implications or Originality - Overall, the evidence consistently suggests that overnight return is considered as a new priced factor in the cross-section of expected returns. The findings of this paper not only adds to finance literature, but also could be useful to practitioners in making stock investment decision.

• The Journal of Asian Finance, Economics and Business
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• v.8 no.2
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• pp.1-13
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• 2021

Previous studies have found the significant adverse effects of coronavirus disease 2019 (COVID-19) on stock returns and volatility. The effects varied with the confirmed cases and deaths. However, the extent of the effects have never been measured exactly. This study proposes a measurement model for the COVID-19 effects. In the proposed model, stock returns in the COVID-19 period are weighted averages of pre-COVID-19 normal returns and COVID-19-induced returns. The effects are measured by the contributing weights of the COVID-19-induced returns. Kalman filtering is used to estimate the model for the world and Chinese markets, in combination with 10 markets - five most affected countries (United States, India, Brazil, Russia, and France) and five best recovering countries (Hong Kong, Australia, Singapore, Thailand, and South Korea). The sample returns are daily, obtained from the closing Morgan Stanley global investable market indexes. The full period is from September 24, 2018, to October 30, 2020, whereas the COVID-19 period is from November 18, 2019, to October 30, 2020. The contributing weights are significant and close to 100% for all markets. The COVID-19-induced returns replace the pre-COVID-19 normal returns; they are negatively auto-correlated and highly volatile. The COVID-19-induced returns are new normal returns in the COVID-19 period.

• East Asian Economic Review
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• v.27 no.1
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• pp.33-60
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• 2023

This paper analyzes the entire distribution of stock market returns/volatility in five emerging markets (ASEAN5) and figures out the conditional distribution of the CHI_EPU index. The aim is to examine the impact of CHI_EPU on the stock returns/volatility density of ASEAN5 markets. It also examined whether changes in CHI_EPU explain returns at higher or lower points (abnormal returns). This paper models the behaviour of stock returns from March 2011 to June 2018 using a non-parametric conditional density estimation approach. The results indicate that CHI_EPU diminishes stock returns and augments volatility in ASEAN5 markets, except for Malaysia, where it affects stock returns positively. The possible reason for this positive impact is that EPU is not the leading factor reducing Malaysian stock returns; but, other forces, such as dependency on other countries' stock markets and global factors, may have a positive impact on stock returns (Bachmann and Bayer, 2013). Thus, the risk of simultaneous investment in Chinese and ASEAN5 stock markets, except Malaysia, is high. Further, the degree of this influence intensifies at extreme high/low intervals (positive/negative tails). The findings of this study have significant implications for investors, policymakers, market agents, and analysts of ASEAN5.

• The Journal of Asian Finance, Economics and Business
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• v.8 no.1
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• pp.609-621
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• 2021

Faith-based investment instruments, such as sharia-based stocks, have developed rapidly in recent years. When investing in these instruments, investors tend to emphasize materialistic returns as measured with monetary returns and metaphysical returns, such as blessings from God (Allah) because of their observance of Islamic teachings. In this respect, it is important to investigate the role of individuals' religiosity in investment decision making in Sharia-based financial products. An equally crucial research question is whether individuals' religiosity levels affect expected material returns as measured by the tolerable negative returns of sharia-based stocks. This study relies on a survey method that involves university students in Java island who actively invest through the Investment Gallery of their faculties/ universities as the sample. Data is then analysed with the multinomial regression analysis technique. The results show that individuals who are more observant of their religious teachings are more likely to fully invest their funds in Sharia-based stocks and exhibit greater tolerance towards the negative returns of Sharia-based stocks. The findings indicate that Muslim investors who are more observant of Islamic teachings emphasize metaphysical returns from their investment decisions.

• The Korean Journal of Financial Management
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• v.27 no.2
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• pp.145-167
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• 2010

We investigate the dynamic relationship between stock returns and investors' behavior. For the putpose of the paper, daily KOSPI returns are decomposed into two parts: overnight returns and daytime returns. Overnight return is measured by the closing price of the previous day and the opening price of the current day. And daytime return is measured by the opening and closing prices of the current day. Qvernight returns are assumed to reflect global economic information, and daytime returns, domestic or local information. Major results are as follows: Foreign investors' behavior has an effect on the overnight returns more than the daytime returns. Individual investors' behavior, however, has little effect on the overnight returns, but not the daytime returns. Consequently, forecast error variance decomposition shows that the variance explanation power of foreign investors is higher in overnight returns rather than in the daytime returns. And the variance explanation power of individual investors is higher in daytime returns rather than in overnight returns. It implies that foreign investors employ dynamic hedging strategies and give more weight to global economic information rather than to domestic information. We conclude that investment behavior of foreign investors and domestic individuals is based on different economic information. This paper's findings are consistent with the economic situation that the Korean capital markets have faced since the global financial crisis of August 2008.