Robustness of Idiosyncratic Volatility Puzzle in the Korean Stock Market

Ok, Youngkyung; An, Seung-Cheol; Kim, Jungmu

doi:10.26845/kjfs.2018.08.47.4.635

Cited by 2 publications

(1 citation statement)

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“…Dorn and Huberman [3], Han and Kumar [4], and Kumar [5] argue that speculative trading by retail investors can result in overvalued asset prices that subsequently drop to rational levels because retail investors tend to hold stocks with lottery-like features such as high IVOL. Although it is known that low-volatility investing is unable to generate a robust profit on the KOSPI market [6], we expect that it will be able to produce significant profits on the KOSDAQ market where the retail trading proportion is dominant. The KOSDAQ market can be the ideal environment for analyzing the impact of mispricing by retail investors.…”

Section: Introductionmentioning

confidence: 88%

Is Low-Volatility Investing Sustainable in the SME Stock Market of Korea? A Risk and Return Analysis

Kim

Park

2019

Sustainability

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This study examines the risks and profitability of low-volatility investing in the Korean Securities Dealers Automated Quotations (KOSDAQ) market during the 2001–2017 period. We chose the KOSDAQ market because noise trading is dominant and stocks are likely to be mispriced. We, therefore, expected that low-volatility investing could generate robust profits on the KOSDAQ market, unlike investing on the KOSPI market. Our empirical results support our prediction. Several risk metrics also indicated that this strategy can be implemented in practice. Furthermore, our findings suggest that the idiosyncratic volatility anomaly can be magnified by the mispricing effects of noise trading.

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Section: Introductionmentioning

confidence: 88%

Is Low-Volatility Investing Sustainable in the SME Stock Market of Korea? A Risk and Return Analysis

Kim

Park

2019

Sustainability

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Market anomalies in the Korean stock market

Minyeon

Lee

Kang

2020

JDQS

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This paper aims to replicate 148 anomalies and to examine whether the performance of the Korean market anomalies is statistically and economically significant. First, the authors observe that only 37.8% anomalies in the universe of the KOSPI and the KOSDAQ and value-weighted portfolios have t-statistics that exceed 1.96. When the authors impose a higher threshold (an absolute value of t-statistics of 2.78), only 27.7% of the 148 anomalies survive. Second, microcaps have large impacts. The results vary significantly depending on whether the sample included stocks in the KOSDAQ and whether value-weighted or equal-weighted portfolios are used. The results suggest that data mining explains large portion of abnormal returns. Any tactical asset allocation strategies based on market anomalies should be applied very cautiously.

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Robustness of Idiosyncratic Volatility Puzzle in the Korean Stock Market

Cited by 2 publications

References 0 publications

Is Low-Volatility Investing Sustainable in the SME Stock Market of Korea? A Risk and Return Analysis

Is Low-Volatility Investing Sustainable in the SME Stock Market of Korea? A Risk and Return Analysis

Market anomalies in the Korean stock market

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