I examine the importance of price support regulation in explaining IPO underpricing in the Korean stock market from 2001 through 2007. In contrast to the US practice where price support is provided effectively at the cost of the issuing firms, the price support in Korea resulted in direct costs to the underwriters. I construct a simple model to capture this feature of the regulation where IPO prices are determined through the interaction of the maximizing behaviors of underwriters and issuers. In the model, three variables, namely, the expected post-IPO price volatility, size of newly issued shares, and size of tradable shares, are specified to affect the opportunity costs of underpricing. When combined with the regulatory regime change in 2003, which lightened underwriters' obligations towards price support, the model implies that the magnitudes of the relationships between the three variables and underpricing have decreased since 2003. I test the hypotheses and find supportive empirical results: the relationship of underpricing with the expected price volatility has changed from positive to insignificant; those with sizes of newly issued and tradable shares from insignificant to negative. The findings contrast with existing Korean studies that do not find any evidence that price support regulation decreased the opportunity cost of underpricing for underwriters. The results also illustrate a more general point that to fully understand underpricing in a given stock market, it is crucial to take into account the regulatory environment that systematically influences agents' incentives to control or generate underpricing.
Shin and Jungho Yoo are research fellows at the Korea Development Institute. 1. Mattoo (1999) reports that the financial service trade through commercial presence was two times or more as large as the cross-border trade, whereas the other two modes were insignificant in the case of the United States, the only country that reports trade through commercial presence on a regular basis. 284 Sang In Hwang, Inseok Shin, and Jungho Yoo 288 Sang In Hwang, Inseok Shin, and Jungho Yoo 5. See Kang (2000) for the discussion of financial deregulation before the crisis. 6. This subsection draws on Park (1996).
This study detects a structural break in international consumer price index (CPI) inflation comovement. We estimate the dynamic common factor models with unknown breakpoints of cross-country inflation rates and global price index of all commodities. We identify two global factors from the models: a commodity global factor and a noncommodity global factor. The former is a common factor between national inflation rates and commodity price index growth; the latter is a common factor among national inflation rates. The estimation of 29 countries’ quarterly CPI inflation data from 2001:Q1 to 2018:Q2 shows a one-time break in cross-country inflation dynamics in 2008:Q4. Thereafter, the importance of global factors in explaining the national inflation rates is remarkably increased. Furthermore, the increased global inflation synchronization is mainly driven by the larger role of the noncommodity global factor rather than that of the commodity global factor.
We examine statistical importance of a number of institutional factors, which have been alleged by market investors and policy commentators as significant barriers on cross-border portfolio investment in East Asian economies, but never been put to empirical tests yet. Taking advantage of the novel data set constructed by the ABMI-GoE, we empirically investigate the explanatory power of such institutional factors as market access-hindering regulations, foreign exchange controls, credit controls, taxation and inefficient post-trading infrastructure. We find that these alleged barriers indeed have significantly negative impacts on cross-border portfolio investment in East Asian economies. In addition, we find some support for the "pecking order" hypothesis in barriers on cross-border portfolio investment in the sense that barriers on post-trading efficiency and cost barriers are not effective unless barriers on market access are significantly lowered.
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