US Economic Uncertainty and the Korean Stock Market Reaction

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This paper examines whether US economic uncertainty is significantly priced in the Korean stock markets. Our results show that stocks highly sensitive to US economic uncertainty with positively or negatively large uncertainty betas have lower future returns. Motivated by the overpricing explanation, we suggest that these stocks are more likely to be exposed to greater divergence of opinions and thus overpriced. More importantly, we further suggest that the large proportion of retail investors which is a distinctive feature of the Korean stock markets contributes to overpricing by limiting arbitrage. Utilizing our unique intraday data, we measure limits to arbitrage with levels of retail trading, and find further supporting evidence that overpricing is significant only within stocks with high limits to arbitrage and in during high retail-sentiment period.
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Issue Date
2021-08
Language
English
Article Type
Article
Citation

EMERGING MARKETS FINANCE AND TRADE, v.57, no.10, pp.2946 - 2976

ISSN
1540-496X
DOI
10.1080/1540496X.2019.1672151
URI
http://hdl.handle.net/10203/287120
Appears in Collection
MT-Journal Papers(저널논문)
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