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  • P-ISSN 1738-656X
  • E-ISSN 2586-4130
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한국개발연구. Vol. 35, No. 2, May 2013, pp. 107-131

https://doi.org/10.23895/kdijep.2013.35.2.107

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Is There a Stochastic Non-fundamental Trend in Korean Stock Price?: Inference under Transformed Error Correction Model

Yun-Yeong Kim

Author & Article History

Manuscript received 07 March 2012; revision received 09 March 2012; accepted 23 April 2013.

Abstract

In this paper, we test and estimate the stochastic non-fundamental trend in Korean stock market. For this, following Kim (2011), we exploit that the long-run equilibrium stock price may be decomposed into fundamental and stochastic non-fundamental trends (i.e., the sum of dividend innovations and a part that are orthogonal with the dividend innovations) by using the Beveridge-Nelson decomposition and projections. In this VAR construction, there is an error correction mechanism through which stock prices converge to their long-run equilibrium, which also contain the stated stochastic non-fundamental trend as well as fundamental trend. The estimation and test results using yearly data from the Korea (1976-2012) indicated that fluctuations in stock prices during that period can be explained mainly not by the stochastic non-fundamental trend but by the dividend trend. However, during some periods like after Seoul Olympic Games, we may observe the non-fundamental trend affected to the stock price variation.

Keywords

주가(Stock Price), 펀더멘털과 무관한 추세(Stochastic Nonfundamental Trend), 베버리지넬슨 분해(BeveridgeNelson Decomposition), 오차수정모형(Error Correction Model)

JEL Code

C3, F4

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