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

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

Blog Article

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 Kratom Gummies 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 One Hitters 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.