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Using a market model and principal component analysis, we investigate the existence of common effects in order imbalance in the Borsa Istanbul's option market. Accordingly, we find the presence of commonality in order imbalance for call options and an even more dominant presence in put options. We investigate the impact of this commonality on the underlying equity market's price discovery; however, the results indicate no significant impact. Our results suggest that, from the order imbalance perspective, equity order imbalance contributes more than options to explaining stock return variations. © 2021 The Authors

In the A-share market, which is dominated by retail investors, most investors lack financial market expertise. Securities analysts’ attention to listed companies has become a reference for investors’ transactions. Based on the data of non-financial listed companies in Shanghai and Shenzhen A-share markets from 1997 to 2020, this paper empirically studies the influence of analyst attention on the idiosyncratic volatility effect by means of portfolio analysis and Fama-Macbeth regression analysis. The results show that: Firstly, A-share market has a significant idiosyncratic volatility effect, and it still exists after adding company, market, annual and industry variables; Secondly, Analyst attention will significantly reduce the idiosyncratic volatility effect, and it still exists significantly after adding company, market, annual, and industry control variables; the research conclusions provide practical guidance for explaining the idiosyncratic volatility effect and the forecast of analyst attention.

One of the reasons why a firm chooses to go private is the significant amount of cash flows which can exacerbate agency costs: this can indicate poor growth opportuni- ties and make external resources less required. In line with both knowledge economy and financial literature, the paper aims to indagate the relationship between agency costs, firm’s performance, and delisting. Despite there is evidence in finance that highlights the role of exchange regulators in the going private processes, just few studies focus on the voluntary delisting and its antecedents. Starting from the knowl- edge economy setting, this paper aims to define how firm’s financial performance moderates the relationship between agency costs and delisting choices. Based on a sample of non-financial firms delisted from the most important European stock mar- kets between 1997 and 2017, we applied an OLS regression to analyze the main var- iables that influence the going private processes. We find that a high level of stock market performance, associated with high level of free cash flows, promotes going private as a means of anticipating and preventing future value decreases. Finally, the paper provides practical implications for the development of new approach of delist- ing choice.

This paper investigates whether financial markets in emerging Asia have become more globally or regionally integrated since the Asian financial crisis in the late 1990s. It employs a price-based measure of integration, namely stock return differentials between ten emerging Asian economies and the US (as an indicator of global integration), as well as Japan and the Asian region (as two alternative indicators of regional integration), to test for mean reversion and draw inference on financial integration. It makes a three-fold contribution: it uses not only aggregate but also industry level data on stock returns; it examines the impact of the 2008 crisis; it adopts a more general fractional integration approach. The evidence suggests that in emerging Asia, at both the aggregate and industry (especially for the financial sector) level, there is more regional than global integration, and that the former has become even stronger in the post-2008 crisis period. Further, Japan’s influence has been declining and the Chinese stock market has become more integrated, both regionally and globally.

This paper provides a novel perspective on the predictive ability of credit rating announcements over stock market returns and volatility using a novel methodology that formally distinguishes between different market states that can be characterized as bull, bear and normal market conditions. Using data on the credit rating announcements published by the three well-established credit rating agencies and data on BRICS and PIIGS stock markets, we show that the stock markets react heterogeneously, and in quantile-specific patterns, to rating announcements with more persistent and widespread effects observed for PIIGS stock markets. The effect of rating announcements is generally stronger and more widespread in the case of the volatility of returns, implying significant risk effects of these announcements. Finally, we show that the effect of the aggregate ratings is driven mostly by rating upgrades rather than downgrades, implying asymmetry in the predictive ability of rating announcements during good and bad times. Overall, our findings show that predictive models can be greatly enhanced by disaggregating the overall rating announcements and taking into account nonlinearity in the relationship between rating announcements and stock return dynamics.

The idiosyncratic volatility (IVOL) anomaly, documented in Ang, et al. (2006), has garnered a great deal of attention in the literature. Yet questions remain regarding the robustness and pervasiveness of the IVOL anomaly, with a particular concern that the IVOL anomaly might simply be the manifestation of market microstructure effect. In this paper, we show that the IVOL anomaly is strong and pervasive after we exclude stocks most susceptible to market microstructure noise — such as microcap stocks, penny stocks, and stocks with strong short-term return reversal. These results are robust to equal-weighting or value-weighting stocks in the IVOL portfolios. Our findings suggest that rather than being the cause of the anomaly, market microstructure noise actually weakens the IVOL anomaly.

This paper provides evidence about the asset pricing implication of political uncertainty in China. Under the assumption that there is a U-shape relationship between political uncertainty and the d...

We develop a simulation-based procedure to test for stock return predictability with multiple regressors. The process governing the regressors is left completely free and the test procedure remains valid in small samples even in the presence of non-normalities and GARCH-type effects in the stock returns. The usefulness of the new procedure is demonstrated in a simulation study and by examining the ability of a group of financial variables to predict excess stock returns. We find robust evidence of predictability during the period 1948-2014, driven entirely by the term spread. This empirical evidence, however, is much weaker over subsamples.

Using a hand-collected database, we evaluate 328 illegal insider trading cases in the Chinese financial market from 2007 to 2018. Insiders, on average, make less profits than a single buy-and-hold ...

Limited attention is an inevitable outcome of voluminous information. Investors facing a large number of stocks can only focus on a few and endeavor to have access to in-depth knowledge. Since the ...

“Can companies benefit from corporate social responsibility?” is still unsolved. This study investigates how corporate social responsibility impacts stock returns with Hexun’s CSR rating for first time. The sample is based on Chinese A-share listed companies for the period 2010-2017. We adopt threshold regression and multiple regression and find that: first, there is a U-shaped relationship between CSR and stock returns. This finding suggests that the relationship between CSR and stock return is affected by cut-off point, which is negative before cut-off point, and positive after cut-off point. In addition, this relationship has nothing to do with the nature of enterprise property rights. Second, fulfilling CSR affects corporate reputation and relieves information asymmetry, corporate reputation and institutional investors are the channels through which CSR influences stock returns. Fourth, we demonstrate the moderating effect of external legal environment between CSR and stock return. This paper provides new evidence for understanding the impact of CSR on enterprise value.

The Fama-French model offers a framework explaining the stock return variability by capturing the size, value, profitability, and investment patterns of firms; but it fails in capturing the low average returns on small stocks. This article contributes to asset pricing models by investigating the role that the volume of Google search might play as augmented factor in explaining the stock returns. Through system-GMM estimations with the data in the period of 2009–2016 for 5-emerging markets (Indonesia, Malaysia, Philippines, Thailand, and Vietnam), we find that Fama-French model is not always effective. The increases in Google search volume appear to have significant negative impacts on stock returns in the case of Philippines, Thailand, and Vietnam. This suggests that investors might be more sensitive to bad news than good news in their investment decisions. Furthermore, our Google indicator is found to have an influence on the Fama-French factors in explaining the stock returns. Keywords: Asset-pricing model, Google search, Stock returns, JEL classifications: D53, G12, O16

We study how attention allocation affects the composition of market/industry and firm-specific information in stock prices via repeated natural experiments. Using large jackpots of Taiwanese nationwide lotteries as exogenous shocks to investors’ attention, we find: (1) individual stock returns co-move more with the market/industry returns on large jackpot days; (2) large jackpots have stronger effects on stock returns’ co-movement with the market than with the industry; (3) the effect of large jackpots on return co-movement is stronger for stocks preferred by retail investors; (4) the market under-reacts to firms’ earnings announcements on large jackpot days; and (5) large jackpot days are associated with high (low) Google searches for lotteries (firms). Our findings are consistent with the theory that attention-constrained investors rationally allocate more attention to market-level information than to sector-level information, and more attention to sector-level information than to firm-specific information.

This paper studies the effects of vertical merger and R&D collaboration activities on firms' innovation decisions and stock returns based on a continuous-time real option model under market...

We show evidence that consistent with category-learning behavior, investors allocate more attention to macroeconomic news than to firm-specific news, such as earnings announcements. Despite the distracting effect of macroeconomic news on investor attention, we find that earnings announcements with concurrent macroeconomic news announcements actually have significantly stronger immediate market response and weaker post-earnings announcement drift. We hypothesize that the combined total attention to macroeconomic news and earnings announcements helps investors understand both the systematic and firm-specific components of earnings surprises. Consistent with the hypothesis, our results show that the macroeconomic news effect is mainly driven by firms with high exposure to macroeconomic news. Moreover, we show that the effect is stronger when macroeconomic news contains more information and for firms with greater information uncertainty. Finally, we provide evidence that macroeconomic news helps reduce stock return uncertainty and enhance stock price efficiency.

This study cross-checks the symmetric and asymmetric effects of investor’s optimistic and pessimistic sentiments of Bitcoin on 23 sectoral stock return indices (10 Islamic stock sectoral indices and one composite Islamic market index by Dow Jones Islamic market and 12 industrial indices by Kenneth R French). Results of Autoregressive Distributed Lag (ARDL) and Nonlinear ARDL models are supporting our conjecture that when investors’ are being optimistic (pessimistic) to Bitcoin they move part of their funds from stocks (Bitcoin) to Bitcoin (stocks). Second, we found asymmetric effects of both sentiment indices on the Islamic stock indices and conventional stock indices. Third, we found support for the decoupling hypothesis as Bitcoin sentiments are affecting conventional stock indices more than Islamic stock indices. Fourth, investors’ optimistic sentiments are robust than pessimistic sentiments explaining sectoral stock return indices. Fifth, insignificance of OBSI and PBSI in most of the sectoral stock indices are evidencing the hedging opportunity for Bitcoin investors.

This article examines 57 companies listed on the Ho Chi Minh City Stock Exchange from January 1, 2015 to March 31, 2020, to check whether or not investors' sentiment impacts the return of these stocks. Investor's daily sentiment towards each stock was measured by the psychological line index. The results of the study using both regression methods, Fama-MacBeth and General Least Squares, show that the influence of investor sentiment to return stocks in the stock market was significant and could not be ignored. Besides, the psychological factor of investors, their trading behavior causing stock supply-demand imbalance were all important factors affecting stock return. The study also found that the effect of firm size on stock returns was more pronounced when both investor sentiment and behavior were used in research models. The finding from this study suggests that individual investors who trade stocks every day can use psychological line index, which is one of the groups of decision-making indicators.

This article systematically reviews relevant literature on news sentiment research, and studies the relevance of news sentiment to stock returns from the aspects of news sentiment research and news text sentiment. This paper sets up a research model to explore the relationship between news sentiment and the stock market. The research shows that news sentiment can affect the stock return by affecting investor sentiment and trading behavior. But the relationship between sentiment and excess returns is not very significant. There are many other factors that affect stock returns, such as interest rate policies, emergencies, and economic factors.

With more and more investors exerting their voices through network forums or social media platforms, the relationships between online investor sentiment and stock movements have drawn more and more attention. In this paper, we crawl stock comments from China’s most popular online stock forum, East Money (www.eastmoney.com), and then develop a sentiment classifier using the LSTM method. Using the online investor sentiment of the stock forum, we explore the effect of online investor sentiment on the stock movements of CSI300. The results show that online investor sentiment has a significant positive impact on both stock return and trading volume and remains significant after controlling book-to-market ratio, BETA, and market value. Moreover, investor sentiment has a significant positive impact on order imbalance of big trade, which represents the main flow of money in the market. As a result, investor sentiment has a positive impact on the major fund flows in the market. In other words, an increase in investor sentiment can boost the major money flows in the market to some extent. From a practical point of view, investor sentiment can assist investors to make investment decisions and help the government to regulate the stock market.

The negative impact of economic crisis in Asia to internal financial decision included investment decision, financing decision, and dividend decisions. This condition is loser if external factors such as inflation rate, interest rate, and exchange rate are not supported. Negative free cash flow including Economic Value Added and Market Value Added, depreciation of stock return indicate financial distress and reduction of shareholder wealth.The research used of Confirmatory Factor Analysis and the hypotheses are: 1. The influence of Inflation Rate (IR), Interest Rate, and Exchange Rate are significant to External Factor.2. The influence of Return on Equity (ROE), Fixed Asset Utilization (FAU), Capital Intensiveness (CI), Inventory Intensiveness (II), Receivable Intensiveness (RI), Margin Ratio (MR), Asset Profitability Ratio (APR) are significant to Investment Decision.3. The influence of Financial Leverage (FL), Short Term Liquidity (STL) and Cash Position (CP) are significant to Financing Decision.4. The influence of Plowback Ratio (PR) and Return On Fixed Asset are significant to Dividend Decision.5. The influence of Economic Value Added (EVA) and Market Value Added (MVA) are significant to Free cash flow.6. The influence of Price Earning Ratio (PER), Dividend Yield (DY), and Capital Gain Yield (Cap.G) are significant to Stock Return.The results of this research are significant influence to external factors, internal financial decision, free cash flow, and stock return; but inventory and receivable intensiveness, dividend yield are not significantly.

Purpose The purpose of this paper is to examine the effect of International Financial Reporting Standards (IFRS) and the moderating role of national economic culture on investors’ herding practices in the European Union (EU) equity markets. Design/methodology/approach The study employs and modify two extensively applied herding measures of cross-sectional standard deviation and cross-sectional absolute deviation, using stock return dispersion as a function of aggregate market return as a proxy for herding behavior. The sample period stretches from January 1, 2001 until December 31, 2015. Findings The study finds that mandatory IFRS adoption significantly promotes investors’ herding practice in the EU equity markets. However, taking a further look, the results suggest that the new reporting regime seems not to be the only instigator for the observed herding practice; national economic culture, particularly individualism and masculinity, contribute significantly toward investors’ herd-formation around the mandatory IFRS adoption. Overall, it can be concluded that the notion that the adoption of IFRS improves information-based trading and mitigates irrational investment behavior might totally be inaccurate in some instances. For example, in the case of herding bias, the new reporting regime appears to have promoted the phenomenon. Research limitations/implications The study employs an approach of herd detection, which explores evidence of herding toward the market consensus. Thus, the results do not in any way exclude the possibility that other types of herding behavior exist in the EU equity markets. Notwithstanding this caveat, the findings of this study would be of special relevance to academics, regulators and policymakers in performing a cost-benefit analysis of the IFRS adoption. Originality/value To the researchers’ knowledge, this study is first to explore the nexus between IFRS and investors’ herding practices, while highlighting the role of the national economic culture.

In this study, we investigate the impact of firm-specific information-processing cost, proxied by annual report readability, on investors’ firm-specific information usage, proxied by firm stock ret...

We investigate the significance of differences of the return distribution (distribution uncertainty) in the cross-sectional pricing of stocks. Our parsimonious proxies for distribution uncertainty measure the difference of distributions between an individual stock return and the market return. We find that stocks with higher distribution uncertainty exhibit higher returns, and the difference between the returns on the portfolios with the highest and lowest distribution uncertainty is significantly positive. We investigate the robustness of our empirical results and find that the impact of distribution uncertainty persists after accounting for firm characteristics.

This paper examines the relationship between the cumulative abnormal returns (CARs) induced by various events and long-term operating performances in the post-event period. We gather six events from KRX Disclosure System over 2000–2011 and then ascertain the different CAR patterns. While most of other studies have focused on a single type of events, we deal with various types of events. Based on the general valuation model, stock return or price should reflect the firm’s fundamental value and we expect CARs to show a close relationship with the firm’s fundamental value over a long horizon. However, no distinct relationship between CARs and operating performances is found. The stock price reactions which are temporary and unrelated to the firm’s fundamental values may be explained by market inefficiency in Korea.

Using historical data (January 1927 to December 2014), this paper shows that stock return predictability is time-varying based on several well-known predictors from the literature. However, only 7 of 14 predictors exhibit this time-varying predictability pattern. For the remaining predictors, either there is no predictability or predictability is not time-dependent. We also examine the determinants of time-varying predictability. We show that (a) both expected and unexpected shocks emanating from financial variables, and (b) phases of predictability (which capture market volatility) explain return predictability.

This study uses the powerful nonparametric cointegration test to examine whether nonlinear cointegration exists between prices of used houses and corresponding stock markets in China and the four Asian Tigers. Then, it uses the smooth transition vector error-correction model (STVECM) to explore the adjustment efficiencies of the short-run house and corresponding stock-return dynamics when there is disequilibrium between house and stock prices. The empirical results indicate that there is nonlinear cointegration between the house prices and corresponding stock prices in China, South Korea, Singapore, and Taiwan, and that the speed of price adjustment to equilibrium is always greater for houses than stocks when there are large positive and negative deviations. Moreover, the short-run speed of adjustment of the large negative and positive deviations is equal in China, South Korea, and Taiwan, but unequal in Singapore. With the exception of South Korea, the results of the Granger causality test indicate that stock prices clearly lead used house prices, which means a wealth effect exists in most Asian countries. Our study confirms that the STVECM can be used to analyze the short-run adjustment efficiency of house and stock return dynamics in China, South Korea, Singapore, and Taiwan; thus, supporting models of interaction between noise and arbitrage traders. Key words: China, Four asian tigers, Smooth transition Vector Error-Correction Model, Nonparametric co-integration, Price discovery.JEL: C32, C51, C52, D53, G11, R31. Ovo istraživanje koristi mocni neparametarski test kointegracije da bi se ispitalo da li postoji nelinearna kointegracija između cena koriscenih kuca i odgovarajucih berzi u Kini i cetiri Azijska Tigra. Zatim, koristi se glatko prelazni modeli korekcije ravnotežne greske (STVECM) za ispitivanje efikasnosti prilagođavanja kratkorocne veze između kuca i odgovarajuce dinamike povracaja akcija kada postoji neravnoteža između cene kuca i akcija. Empirijski rezultati ukazuju na to da postoji nelinearna kointegracija između cena kuca i odgovarajucih cena akcija u Kini, Južnoj Koreji, Singapuru i Tajvanu, kao i da je brzina prilagođavanja cena prema ravnoteži uvek veca za kuce nego za akcije kada postoje velika pozitivna i negativna odstupanja. Stavise, kratkorocna brzina prilagođavanja velikih negativnih i pozitivnih odstupanja jednaka je u Kini, Južnoj Koreji i Tajvanu, ali nejednaka u Singapuru. Nasa analiza potvrđuje da se STVECM može koristiti za analizu efikasnosti kratkorocnog prilagođavanja kuca i povratka akcija u Kini, Južnoj Koreji, Singapuru i Tajvanu; tako, podržava modele interakcije između suma i arbitražnih trgovaca. Kljucne reci: Kina, cetiri Azijska Tigra, glatko prelazni modeli korekcije ravnotežne greske, neparametrijska kointegracija, otkrivanje cena.

Purpose Conventional wisdom says that the price reduction stocks experience at expiration of the initial public offering (IPO) lockup period is due to relaxation of selling constraints. Findings from more recent literature question this explanation. The purpose of this paper is to examine a different cause for this price drop, IPO overvaluation. Design/methodology/approach Using the IPO overvaluation measures of Purnanandam and Swaminathan (2004), the authors examine IPO lockup period stock return differences between stocks in the highest and lowest overvaluation quintiles. Findings The authors show that the IPO lockup period price reduction is strongly related to overvaluation. Zero-investment portfolios long in the lowest overvaluation quintile and short in the highest overvaluation quintile of IPO firms have positive significant returns. Practical implications IPO investors can use the technique to identify firms likely to underperform in the IPO lockup period, potentially avoiding bad investments. Originality/value This is the first study to link IPO lockup period stock returns to IPO overvaluation, providing evidence on the impact of both overvaluation and short-selling constraints on stock returns in the IPO lockup period.

I find a negative cross-sectional relation between the probability of future price crashes and subsequent returns in the Korean stock market, substantially due to the overpricing of stocks with a high probability of crashes. Using precise information on retail trading in the Korean stock market, I also find that stocks with a high crash probability have a relatively high proportion of retail trading. Moreover, the negative relation between the probability of crashes and stock returns is much stronger in stocks traded more heavily by retail investors. However, I cannot find a negative relation between the probability of jackpot payoffs and subsequent returns in Korea, unlike in the United States, even among stocks with a high proportion of retail trading. Both portfolio- and firm-level evidence on the crash effect suggests that stocks with a higher retail trading proportion are more likely to be overpriced, as expected from the limits to arbitrage literature.

This study aims to examine return predictability in 24 emerging markets disaggregated in different regions. We propose four specifications, including a benchmark model. Then, an augmented model appropriate for each country, including a large set of potential factors, is evaluated. Furthermore, a dynamic multifactor model is investigated for all countries. Finally, we relax the symmetric hypothesis in asset return predictability based on a non-parametric non-linear approach: the projection pursuit regression model. Our study reveals three main findings. First, we reject all previous findings supporting a standard model of asset return predictability that is valuable for all countries, as we show that each country has specific domestic factors (both macroeconomic and financial) useful to predict future returns. Second, our empirical framework shows that asset return predictability might be robustly modelled based on non-linear specification based on the projection pursuit regression model. Our findings’ explanatory power of out-of-sample estimations is economically relevant. Our results are useful for investors and policy-makers for portfolio diversification and regulation policies.

This study aims to determine stock return behaviour in Indonesia and Malaysia Shariah stock market. Indonesia and Malaysia are selected based on the countries level of development and geographical factor, since both countries are emerging market with a rapid growth of Shariah stock market not only in term of listed companies but also in term of number of investor. Based on geographical proximity, both countries close to each other and have a strong bilateral relationship which makes their stock market return behaviour influence by many factors. This studies relies on two major time series investigation techniques, namely Economteric Modeling of returns; The Autoregressive model, Assumption of Linearity, Volatility Modeling of GARCH and its extension. The result showed that stock return behavior happening in Indonesia and Malaysia Shariah Stock Market.

We examine the relationship between firms' individual disagreement and the aggregate disagreement. We find that a commonality in firms' individual disagreements exists at the market level, industry level, and geographic level. This commonality increases with a firm's asymmetric information, uncertainty, and the degree of coverage, but decreases with a firm's accounting information quality. We show that disagreement commonality can be a new measure of firm-specific information centering on analysts. We find a positive relationship between firms' commonality in disagreement and co-movement in their stock returns. A higher disagreement commonality may indicate lower usefulness of firm-specific information that strengthens the synchronicity between a firm's stock return and the market return. Our measure of disagreement commonality is especially useful among inefficient markets where analysts are heavily relied on by investors, such as Asia Pacific markets.

Employing various proxies of idiosyncratic volatility, we investigate the relationship between aggregate idiosyncratic volatility and future market returns in Korea. We find a positive association ...

We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors’ opinions polarize. Disagreement thus spikes in bad times, causing returns to react to past news. This phenomenon creates a positive relation between disagreement and future returns. It also generates time-series momentum, which strengthens in bad times, increases with disagreement, and crashes after sharp market rebounds. We provide empirical support for these new predictions.

In this paper, we show that pairwise similarities of a set of macroeconomic variables among major countries in the Pacific Basin region can account for the stock market comovements in the region. We first suggest a simple theoretical argument why pairwise similarities of macroeconomic variables can derive stock market comovements. We then apply the conditional nonlinear quantile regression on the pairwise realized stock return correlations for the stock markets in the Pacific Basin region from 1990 to 2012 to empirically justify the argument. As a result, we find evidence that smaller pairwise differences or larger pairwise similarities of a set of macroeconomic variables significantly drive the stock market comovements in the region in a nonlinear way.

We report that the probability that executives exercise options early decreases with the volatility of the underlying stock return. We interpret this to mean that executives’ subjective option value increases with volatility and that option grants increase executives’ risk appetite. Further decomposition reveals that the results are most pronounced for idiosyncratic volatility, consistent with our conjecture that executives believe they can better predict or influence the resolution of idiosyncratic uncertainty than systematic uncertainty and, thus, favor the former. Data are available at http://dx.doi.org/10.1287/mnsc.2016.2495 . This paper was accepted by Wei Jiang, finance.

Ending-digit effects describe the presence of abnormal returns when the ending digits of stock prices are one penny below or above the zero-ending round number. Using data from 68 countries...

The study investigates the impact of oil prices on firm-level stock returns in case of Pakistan over the period 1998–2014, as this relationship is neglected by the previous literature. By using the panel data estimation, the results of full sample indicate significant positive effect of oil price changes on firm stock returns in the same period, whereas the lagged oil price changes have significant negative effect on firms’ stock return. Moreover, the industry-level analysis also confirms the similar findings; results indicate significant positive impact of oil price on firms’ stock return in full sample, textile, chemical and miscellaneous industry, while the lagged oil price changes negatively affect the stock returns of full sample and all the industries except tobacco, jute and vanaspati industries. The study confirms that rise in oil price transfers a positive signal in the stock market that boosts the firm-level stock returns in Pakistan. In contrast to the negative shocks, the stock returns are significantly affected by the positive oil price shocks.

(ProQuest: ... denotes formulae omitted.)I. INTRODUCTIONThis paper estimates dynamic relationships between the Korean stock market index and the related online search queries within a multivariate GARCH framework. In addition, the paper also attempts to investigate whether the information from search query data can be served as a potential source for designing profitable trading strategies in the Korean stock market.The emergence of internet and social networking services combined with the extensive dissemination of smart phones have revolutionized the way we communicate and exchange information. Consequently, big data continuously flowing from increasing online activities by users have become a buzz word for recent years because of its potentials for various uses including marketing, political predictions, disease epidemics, social dynamics, etc.1Economists are one of the late professions who delves into the investigation of possible use of big data mainly for forecasting market dynamics and related issues.2 The seminal paper by Choi and Varian (2012) shows the use of Google search query data as a key predictor for various economic activities including auto sales, travels, etc.3 It stimulates subsequent studies in the field of economics, which mostly concentrates on exploiting big data to increase the prediction power of forecasting models for economic variables of own interests.The idea that the search query might contain information about subsequent actions by users is based on the premise that economic agents living in a contemporary society largely rely on the prior information-search process before making important economic decisions such as the purchase of durable goods and financial investments.However, the motivaton of information demand does not always run in this direction; the heightened information-gathering activity itself can be the manifestation of a simple endogenous response to major events in markets in quest of more information, which might yield possible effects on market developments in next rounds. These intricacies in the causal relationship between the information demand and the market outcomes make it difficult to assess correctly the real importance of big data. In spite of this complicacy, the predictive power of information generated from online big data for market activity is supported by numerous studies ranging from stock markets to housing markets.4The empirical analysis on the Korean stock market in this study reveals that the search frequency related to the Korean stock market has negative contemporaneous correlations with the KOSPI return for the majority of time with the occasional tightening of its magnitude. Furthermore, a negative association between the search query and the one-week-ahead stock return is observed, while the stock return has no statitically significant impact on the level of the future search query.Based on these observations, we experiment with a hypothetical trading strategy that interprets the increased level of online search activity as a negative signal for future stock returns so as to examine whether profitable trading schemes can be constructed out of big data. The result from this simple exercise demonstrates that the big data-based strategy outperforms the benchmark strategy in terms of the expected utility over wealth. The other experiment also shows that the big data-based option trading strategy can beat the market for certain KOSPI200 option contracts.As a result, this study is the first attempt to analyse the relationship between the KOSPI return and the degree of investor attention5 using the Korean stock market data and a Korean-based internet platform. We conjecture that the contribution is not limited to quantifying the dynamic relationships between stock retums and investor attention and estimating time-varying volatilities; it also explores the potential of big data as one of the practical tools for financial investment strategies, which is rarely pursued in the related literature. …

Recent studies focus on the role of investor attention and transparency in stock-related information in explaining stock return and trading volume. Moreover, recent literatures predict that firm opacity will increase the likelihood of future stock price crashes. In this paper, we investigate, using Naver Trend, the relation between portal search intensity and stock price crash. Using various alternative measures of stock price crash risk and search intensity, we demonstrate that stocks with larger volume of portal search are less likely to experience stock price crashes. These results are consistent with our hypothesis that accumulated firm opacity cause future stock price crash. Finally, our results still hold even after we control for the potential effect of endogeneity in the regression specifications.

This study examines the day-to-day impact of a surge in investor attention on security prices within a four-week investment horizon. Focusing on a sample of ADRs traded in the U.S. stock markets between 2004 and 2015, we measure the surge in investor attention by constructing a dummy variable based on the Search Volume Index (SVI) obtained from Google Trends. We find strong evidence that a surge in investor attention is associated with a same-day positive abnormal return. But the positive association between investor attention and stock return disappears or even reverses quickly after day zero. ADRs originated from developing countries and developed countries appear to be equally responsive to a surge in investor attention.