Emerging stock markets in the Pacific Basin : An empirical analysis with particular reference to the Korean stock market.

This thesis investigates emerging stock markets in the Pacific Basin with particular reference to the Korean stock market, which is representative of typical, fast-growing emerging markets. Using a broader range of econometric models, the short-run and long-run behaviour of stock prices, the impact of changes of a price limit system, and derivatives trading on the stock market are investigated. In the first two chapters, recent performance of emerging stock markets in the Pacific Basin and the development of the Korean stock market are examined. Chapter 3 investigates the behaviour of Korean stock market volatility is investigated. The results show that the GARCH(1,1)-AR(1) and the GARCH(1,1)-MA(1) seemed to be the best fit models among the Autoregressive Conditional Heteroscedasticity (ARCH) class models. The nexus between Korean stock market returns and macroeconomic variables is investigated in Chapter 5. The evidence suggests that changes in the exports/imports ratio is the most important determinant in forecasting the variance of stock returns in the Korean export-oriented economy. Chapter 6 provides tests of long-run equilibrium among Pacific-Basin stock markets for a period spanning the Asian financial market crises. Using unit root tests, which allow for a possible crash, the results find that four of the series are trend stationary. Among the remaining I(1) series, little evidence of cointegration is found. In Chapter 7, the consequences of price limits for weak-form efficiency is investigated for the first time. The evidence suggests that the stock market as a whole approaches a random walk as price limits are relaxed. Chapter 8 investigates the impact on the spot market of trading in KOSPI 200 futures. Empirical results show that futures trading increases the speed at which information is impounded into spot market prices. The lead-lag relation is asymmetric with stronger evidence that the stock index futures market leads the spot market