Stock Return Commonality within Business Groups: Fundamentals or Sentiment?

Posted: 30 Jan 2014 Last revised: 29 Sep 2016

See all articles by Min-Su Kim

Min-Su Kim

Korea University

Woojin Kim

Seoul National University - Business School

Dong Wook Lee

Korea University

Date Written: November 1, 2015

Abstract

We examine stock return comovement within business groups in Korea. Based on all publicly traded stocks from 1980 to 2009, we document that stocks of companies belonging to the same business group co-move with each other more than do stocks in the same industry. The within-group correlation in excess of the within-industry correlation has become more pronounced over time, especially following the 1998 Asian crisis. The increase in correlation seems to be driven more by non-fundamental factors such as correlated trading, rather than fundamental factors such as related-party transactions. Our study adds to the literature by showing that non-fundamental stock return correlation? i.e., categorization or habitat-driven stock comovement exists even at the business-group level.

Keywords: Return commonality; Business group; Corporate governance; Category/Habitat trading; Korea

JEL Classification: G10; G11; G12

Suggested Citation

Kim, Min-Su and Kim, Woojin and Lee, Dong Wook, Stock Return Commonality within Business Groups: Fundamentals or Sentiment? (November 1, 2015). Pacific-Basin Finance Journal, Volume 35, Part A, November 2015, Pages 198-224. Available at SSRN: https://ssrn.com/abstract=2387296

Min-Su Kim

Korea University ( email )

Seoul, 136-701
Korea, Republic of (South Korea)

Woojin Kim (Contact Author)

Seoul National University - Business School ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

Dong Wook Lee

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)
+82.2.3290.2820 (Phone)
+82.2.3290.1307 (Fax)

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