Understanding stock market volatility: The case of Korea and Taiwan

Sheridan Titman, K. C. John Wei

Research output: Journal article publicationJournal articleAcademic researchpeer-review

20 Citations (Scopus)

Abstract

The Taiwanese stock market has historically been considerably more volatile than the Korean market. This is somewhat surprising given the many similarities of the two markets. One notable difference between the two markets is that trading volume is substantially higher in Taiwan, leading some to believe that the higher volatility in Taiwan is a result of 'excessive' speculation. The evidence presented in this paper is somewhat mixed. First, we find no evidence of mean-reversion in the stock market index in either country. Second, we find that Taiwanese stock returns are much more correlated with their earnings than are Korean returns, both over time and cross-sectionally. However, during 1987, 1989 and 1990, when Taiwanese stocks experienced extremely large price movements, the cross-sectional correlations between stock returns and earnings were very low, suggesting that at selected times, Taiwanese stock prices may have deviated from their fundamental values.

Original languageEnglish
Pages (from-to)41-66
Number of pages26
JournalPacific Basin Finance Journal
Volume7
Issue number1
Publication statusPublished - Feb 1999
Externally publishedYes

Keywords

  • G14
  • G15
  • Korea
  • Market efficiency
  • Taiwan
  • Volatility

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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