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Available. Open Access. Open Access
Article
Publication date: 31 August 2015

Junghoon Seon and Ji Soo Lee

In this paper, we make a comparison of price efficiency between the new market (KOSDAQ) and the main board (KOSPI) in the Korean stock market. More specifically, we evaluate the…

33

Abstract

In this paper, we make a comparison of price efficiency between the new market (KOSDAQ) and the main board (KOSPI) in the Korean stock market. More specifically, we evaluate the relative price efficiency of both markets by comparing the speed, degree and accuracy in process of intraday price discovery. Each market’s speed and degree of price discovery are measured by WPC (weighted price contribution) devised by Barclay and Warner (1993) and WPCT (weighted price contribution per trade) proposed by Barclay and Hendershott (2003), respectively. Each market’s accuracy of price discovery is measured by unbiased regression coefficient used by Biais et al. (1999). We analyze 535 KOSPI stocks and 803 KOSDAQ stocks using 1-minute-interval transaction data collected from Bloomberg. The major findings of this paper are summarized as follows: Fist, the price discovery in KOSDAQ, the new market is slower than in KOSPI, the main board. Second, the morning session’s degree of price discovery per trade in KOSDAQ is smaller than KOSPI. Finally, the price discovery in KOSDAQ is more accurate than in KOSPI. Overall, our results indicate that the prices of KOSDAQ stocks are as efficient as the prices of KOSPI stocks, thought they have smaller firm size, younger ages, and greater uncertainty in cash flow and asset value than the main board stocks do.

Details

Journal of Derivatives and Quantitative Studies, vol. 23 no. 3
Type: Research Article
ISSN: 2713-6647

Keywords

Available. Open Access. Open Access
Article
Publication date: 31 May 2016

Junghoon Seon

Korea Exchange has widen daily price limits from ±15% to ±30% of previous trading day’s closing price since June 15, 2015. In this paper, we examine how the event of widening…

37

Abstract

Korea Exchange has widen daily price limits from ±15% to ±30% of previous trading day’s closing price since June 15, 2015. In this paper, we examine how the event of widening price limits affect price discovery process over the course of trading day. In order to conduct this investigation, we compare price efficiency during such price discovery before and after the event. The changes that has occurred after the event can be summarized as follows: First, an analysis on full-sample indicates that price efficiency is maintained over the course of a trading, while it is aggravated temporary in two early intervals. Second, an analysis on sub-samples sorted by market capitalization, shares outstanding, or share price indicates that temporary aggravation of price efficiency in some mid-intervals is observed for shares outstanding lower group and share price top group. Overall, our results suggest that evidence supporting information hypothesis is found for the whole process of price discovery over the course of a trading day, though evidence supporting over-reaction hypothesis is found in some intervals or some types of stocks.

Details

Journal of Derivatives and Quantitative Studies, vol. 24 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

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