Return patterns of South Korean stocks following large price shocks

Sascha Kolaric*, Florian Kiesel, Dirk Schiereck

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This study tests the market efficiency of the South Korean stock market by examining returns on stocks of the constituents of the KOSPI 50 from 2000 to 2014 following large 1-month price decreases and increases. An exponential GARCH (EGARCH) event study framework is used to analyse the stock returns. The results show that large price shocks, positive and negative, are likely to be followed by positive market returns. Moreover, the results show an increase in the beta of stocks in the years following a large price shock. The overall results therefore support the Uncertain Information Hypothesis. However, beginning in 2008, return patterns more closely reflect those hypothesised by the Efficient Market Hypothesis, possibly due to increased participation by international investors. The observed returns following large price increases and decreases can be partially explained by changes in the Korean won to US dollar exchange rate and the trading behaviour of foreign investors.
Original languageEnglish
Pages (from-to)121-132
JournalApplied Economics
Issue number2
Early online date12 Aug 2015
Publication statusPublished - Jan 2016


  • stock price predictability
  • market efficiency
  • overreaction
  • Efficient Market Hypothesis
  • Uncertain Information Hypothesis


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