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  • P-ISSN 2586-2995
  • E-ISSN 2586-4130
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KDI Journal of Economic Policy. Vol. 40, No. 1, February 2018, pp. 45-66

https://doi.org/10.23895/kdijep.2018.40.1.45

× KDI Open Access is a program of fully open access journals to facilitate the widest possible dissemination of high-quality research. All research articles published in KDI JEP are immediately, permanently and freely available online for everyone to read, download and share in terms of the Creative Commons Attribution 4.0 International License.

What Drives the Stock Market Comovements between Korea and China, Japan and the U.S.?

Jinsoo Lee; Bok-Keun Yu

Author & Article History

Manuscript received 14 November 2017; revision received 16 November 2017; accepted 22 February 2018.

Abstract

This paper measures the extent of comovements in stock returns between Korea and three major countries (China, Japan and the U.S.) using industry-level data for Korea from 2003 to 2016 in the spirit of the international capital asset pricing model. It also examines what drives the comovements between Korea and the three countries. We find that the comovements of Korean stock returns with those of the U.S. and Japan became smaller after the global financial crisis. In contrast, the comovement in stock returns between Korea and China became larger after the crisis. After an additional analysis, we conclude that trade linkage is the main driver of the comovements between Korea and the three countries.

Keywords

Stock Market Comovement, Trade Linkage, Financial Linkage

JEL Code

F15, F21, G15

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