This study demonstrates that investor trading behavior influences the positive relationship between past intermediate prospect theory value (PTV) based on 12-month return distributions and expected returns. The predictive power of intermediate PTV portfolios is mainly driven by individual investors’ high trading activity, with foreign investors also contributing to it. Their effect arises from the opposite position: individuals show net selling (buying) in a high (low) PTV portfolio, whereas foreigners do the reverse. These patterns suggest that foreign investors’ trades align with the PTV’s predictive signals, unlike those of individuals. These findings offer behavioral insights into return predictability and provide a foundation for future investor-focused research.

This study examines the momentum echo effect using cross-sectional momentum (CMOM) and idiosyncratic momentum (IMOM) in the Korean stock market. The results document robust evidence for CMOM-based portfolios, while IMOM-based portfolios exhibit contrasting evidence. Specifically, as the momentum formation period shifts from distant-past to near-past months, CMOM performance changes from positive to negative, while IMOM changes from negative to positive. These differences arise from contrasting trading behaviors of institutional and foreign (InsFOR) investors toward winner portfolios. For winner portfolios, InsFOR investors exhibit net-buying of CMOM winners but net-selling of IMOM winners. Their behavior reflects the delayed incorporation of public market information for CMOM and the underrecognition of firm-specific information for IMOM.

This study empirically investigated the significant positive premium from the short-term market beta in the previous month in the Korean stock market. This positive premium was not observed in the market betas for any other one-month estimation period or for any of the various month combinations within the past 12 months. This implies that the previous month provided differential information for the short-term market beta. Moreover, the short-term market beta premium was identified even after controlling for anomalies (size, short-term reversals, idiosyncratic volatility, maximum, and liquidity) that may generate negative premiums in the future from the previous month. This means that unique information from the previous month influenced the short-term market beta. These results suggest that the short-term market beta has a differential predictive ability that can explain cross-sectional return variations in terms of risk and return. In addition, when applying the same test process to the U.S. stock markets, no significant positive premium was identified from the market beta of the previous month. In exploring behavioral explanations, the positive premium of the short-term market beta was closely related to net buying trades in the high trading activity of individual investors and net selling trades in the high trading activity of foreign investors.

Current price jump tests assume a constant intra-day volatility pattern (IVP) over sample period. We test this assumption by allowing IVP to depend on some state variables such as the sign of previous returns or the relative levels of volatility. Estimation results from 5-min GARCH model for four equity indices show that squared-return-based IVP weights increase in early morning hours when previous returns are negative, suggesting an asymmetric IVP. For a jump-robust IVP estimator, distinct responses are found for days with Realized Variance (RV) increasing from the previous day. Our results are consistent with and complement recent studies on time-varying IVP. Price jumps obtained using the state-dependent IVP are more prudent, show lower degree of clustering and are less concentrated over trading hours.

We investigate how intraday volatility pattern (IVP) differs over days with different market liquidity dynamics measured by the Amihud value and whether such dependence affects the results of intraday price jump detection. Our empirical analyses are based on two jump test methods, three versions of Amihud measure, two classifying conditions on trading days and four stock market indices data. Jump tests applied to more than 10 years of 5-minute returns indicate that by estimating IVP separately according to the Amihud measure: (1) more jump detections are made, (2) jump size as well as size variation increase and (3) jump occurrences show clustering, when the Amihud measure indicates stronger market illiquidity. Our results are consistent with and complement to the existing literature, but are obtained in an ex ante manner.

This study examines the predictive power of performance persistence from the perspective of prospect theory using 12 months of return distributions. Performance persistence stems from unique information that differs from momentum, disposition effect, and firm-specific variables related to the trading behaviors of individual investors. The novel cross-sectional prospect theory value (CSPTV) measurement, designed to reflect cross-sectional comparisons across return distributions for all stocks, captures this unique information better than the existing prospect theory value (PTV), which is specific to a single stock. In other words, CSPTV improves the predictive power of prospect theory by providing performance with a larger magnitude and greater significance than PTV. Consequently, this study anticipates differentiated contributions from the CSPTV design, which expands the application scope of the existing prospect theory to the past 12-month return distribution and improves the predictive power of prospect theory in cross-sectional stock returns.

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This study analyzes why the negative momentum effect appears in Asian (China, Japan, Korea) stock markets, contrary to the U.S. market. We use principal component momentum (PMOM), a newly devised momentum measure. The PMOM is constructed by extracting commonalities from traditional momentum measures using principal component analysis. The results show evidence of positive and negative momentum profits in the U.S. and Asian markets, respectively. Negative momentum profits in Asian markets are attributable to the strong performance reversal of small stocks in the loser portfolio. Conversely, the positive momentum profits of the U.S. market are driven by the performance continuity of small stocks in the winner portfolio. The PMOM strategy is significantly more advantageous than traditional momentum strategies, based on the economic and statistical perspectives of momentum profits. These results are robust to changes in empirical designs.

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This study documents the importance of considering the cross-sectional differences in the tail properties of stocks' return distributions when analyzing the left-tail momentum (LTM) phenomenon. This phenomenon is verified in the Korean stock markets, which shows that stocks showing large losses in the past tend to continue to perform poorly in the future. However, when tail fatness (TF), measured using standardized return distributions, is considered, the LTM phenomenon is significant only in the low-TF stock group. This means that investors underestimate the persistence of left-tail risk only for stocks with a low frequency of large losses, and not for all stocks that show large losses. The results of the measurement of tail risk (TR) reaffirm the positive relationship with expected returns, which shows that the existence of LTM is verified only in the low-TR stock group, suggesting a need for caution in interpreting the LTM phenomenon with low TR as a market anomaly.

This study finds short-term idiosyncratic momentum (iMOM) in cross-sectional stock returns. The short-term iMOM utilizes the daily residual returns estimated by pricing models in the previous month. This is different from idiosyncratic volatility (IVOL), which uses the volatility of the same residual returns and short-term reversals (SREV) using returns in the previous month. The short-term iMOM portfolios persistently show significant positive performance from one to eight months in future periods. This persistent pattern is due to the under-reacted trading behavior of institutional investors’ over-selling of winner stocks in short-term iMOM. Moreover, the short-term iMOM has unique information that cannot be explained by known factor premiums and shows significant evidence even after controlling for firm-specific variables related to arbitrage constraints in the previous month. An interesting finding is that short-term iMOM and IVOL are in a reciprocal barometer relationship on whether or not to have predictive power on the expected returns of stocks; that is, the existence of (non-) significant short-term iMOM implies the existence of (non-) significant IVOL, and vice versa. Therefore, this finding is expected to lead to further studies that verify short-term iMOM and provide additional insight into the IVOL puzzle.

This study examines the relationship between left-tail risk and stock return in the Korean stock markets and ascertains whether there is a left-tail momentum phenomenon in which stocks with high left-tail risk have lower investment performance than those with low left-tail risk (Atilgan et al., 2020). The results reveal that left-tail risk has a significant negative relationship with stock returns for future holding periods and that the left-tail momentum is strongly observed in the Korean stock markets. The excess return of the Fama-French 3-factor model of the decile portfolio-based (H-L) zero-cost investment strategy using left-tail risk has a significant value of -0.67% to -0.73% per month on average. These results are robust even after controlling for changes in the left-tail risk measures or key related variables that could affect the left-tail momentum. In addition, the left-tail momentum has explanatory power regarding the fluctuations of stock returns independent of Fama-French 3-factors.

본 연구는 한국 주식시장에 있어서 Benartzi and Thaler(1995)의 접근법에 따라 근시적 손실회피(myopic loss aversion) 경향을 전망이론효용(prospective utility)과 결합하여 주식프리미엄 퍼즐의 새로운 설명을 제공한다. 즉, 국내연구와의 차별적인 새로운 시각에서, 주식프리미엄 퍼즐의 존재 여부를 위험자산(주식)과 무위험자산(채권)의 투자 매력을 동일하게 (무차별하게) 만드는 평가기간(보유기간)을 통해 확인하는 것이다. 검증결과에 의하면, 한국 주식시장에 있어서 위험자산(주식)과 무위험자산(채권) 각각의 전망이론효용이 동일해지는 평가 기간은 7개월~9개월임을 확인하였다. 결국, 투자자들의 근시적 손실회피 경향을 통한 주식프리미엄 퍼즐의 설명은 투자자들이 무위험자산(채권)에 투자하는 것은 위험자산(주식)에 대한 보다 짧고 빈번한 평가기간에 기인한다는 것을 시사한다.

Evidence on Market Intraday Momentum (MIM) has been documented in the United states and in some, but not all, major economies. The main results on MIM are broadly robust against transaction costs, which are measured by either quoted spread or effective spread. By using two new spread measures obtained from high and low prices, we show that these measures of transaction cost tend to become smaller toward the end of a trading day, thus establishing MIM in more than 10 years of the 30 min KOSPI index. We also report the solid profitability of such MIM-based trading strategies.

This paper reviews studies related to factors and anomalies in empirical asset pricing. The contents are presented in three main parts. First, in international studies, model structures, factors, and the factor generation processes of major empirical pricing models are introduced, and results from replicating anomalies in cross-sectional returns are presented. Second, in domestic studies, factors and anomalies from the four-type classification of momentum, value and growth, investment, and profitability in Korean stock markets are reviewed. Finally, this paper suggests a few directions to improve the research environment of empirical asset pricing.

Korean Abstract: 본 연구는 코로나19 충격이 금융산업의 주식들 간 연결 관계에 미치는 영향을 네트워크 관점에서 관찰한다. 코로나19 충격에 기인한 시장붕괴는 경제충격의 경우와 매우 유사한 시계열 특징을 보인다. 최소 신장 트리의 주식네트워크에서, 경제충격은 사건일 후에 시장 조정을 통해 그 효과가 약화되고 다른 구조의 주식들 간 연결 관계를 보이는 반면에, 코로나19 충격은 적극적 시장 조정에도 불구하고, 예상치 못한 충격이 계속 발생함에 따라 유사한 주식들 간의 연결 구조를 계속 유지한다. 그랜저 인과관계의 주식네트워크에서, 경제충격은 사건일 전에 전조증상의 유의적 정보흐름을 보이고 사건일 후의 상승추세는 점진적으로 사라지는 반면에, 코로나19 충격은 사건일 전에 전조증상의 유의적 정보흐름이 없고 사건일에 갑자기 증가하는 정보흐름의 추이를 보이고, 특히 이후기간에 유의적 정보흐름의 상승 추이가 지속되는 시계열 특징을 보인다. 결국, 향후 금융산업의 시스템 위험에 관련된 연구들에 있어서, 코로나19와 같은 비경제적 사건들에 기인한 시장충격은 차별적 접근법이 필요하다.English Abstract: This study empirically investigates the impacts of the COVID-19 pandemic on the linkage relationship among stocks in the financial industry through stock networks, comparing to economic shocks in the Korean stock market. The time-series characteristics of the market crash caused by the COVID-19 pandemic resemble that of economic shocks. In the stock network by the minimal spanning tree, economic shocks after events are weakened through the market correction and show different linkage structure of stock networks, while according to stronger shocks after the event continuously, COVID-19 pandemic maintain a similar structure of stock network, regardless of market correction. In the stock network with significant information flow determined by Granger causality, economic shocks show characteristics of significant information flow as a signal before the event day, and the increasing trend of significant information flow gradually disappears. However, the COVID-19 pandemic does not show the characteristic of significant information flow as a signal before the event, and suddenly, significant information flow appears with increasing trend on the day of the event, and in particular, this characteristic is continuously observed in the subsequent period. Consequently, these results suggest that future research related to systemic risk in the financial industry need differential approaches for investigating market crashes caused by non-economic shock such as the COVID-19 pandemic.

While most previous studies have analyzed the performance of the Option Strategy Benchmark Index (SBI) in a specific market such as S&P500 and KOSPI200, this study comprehensively investigates the performance of the option SBIs in nine global options markets in Europe, Asia, and Oceania. In the empirical analysis using the sample data from September 2008 to April 2019, the main results of this study are as follows. First, most of the option SBIs generally provide better performance than the simple buy-and-hold strategy, which is mainly due to a reduction in risk rather than improvement in returns. Second, the option SBIs based on straddle or protective put, one of the most popular option trading strategies, perform poorly in almost all markets, whereas the option SBIs based on covered call or (cash) covered put show relatively good performance. Finally, there is no significant difference in the performance of the option SBIs between markets in the same region or those with a similar level of development. However, we found significant differences in the performance of the option SBIs between Europe and Asia and developed and emerging markets.

This study investigates the level of risk due to fat tails of the return distribution and the changes of tail fatness (TF) through portfolio diversification. TF is not eliminated through portfolio diversification, and, interestingly, the positive tail has declining fatness until a certain level is reached, while the negative tail has rising fatness. This indicates that fat tails are highly relevant to common factors on systematic risk and that the relevance of common factors is higher for the negative tail compared to the positive tail. In the portfolio diversification effect, the declining fatness of the positive tail further reduces risk, but the rising fatness of the negative tail does not contribute to this effect. The asymmetry between the fatness of the positive and negative tails in the return distribution corresponds to the asymmetry of the trade-off relationship between loss avoidance and profit sacrifice that is expected as a consequence of portfolio diversification. Investors use portfolio diversification to reduce their risk of suffering high losses, but following this strategy means sacrificing high-profit potential. Our study provides empirical confirmation for the practical limitation of portfolio diversification and explains why investors with diversified portfolios suffer high losses from market crashes. An examination of the Northeast Asian stock markets of China, Japan, Korea, and Taiwan show identical results.