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Fama-French의 3요인 모형은 미국을 비롯한 여러 나라 주식시장에서 유용한 설명력을 가지고 있는 것으로 검증되어 왔다. 하지만, 국내 주식시장에서 주식수익률과 장부가치 대 시장가치 비율간의 관계가 비유의적이고, 또 그 모방포트폴리오인 HML의 위험프리미엄도 유의적이지 않은 것으로 나타나기 때문에 국내 주식시장에서 주식수익률들의 공통적인 변동을 설명하기 위해 Fama-French 3요인 모형을 사용하는 것이 과연 적절한가에 대한 의문이 제기된다. 반면, 주식거래회전율(turnover)은 국내 주식수익률과 유의한 관계를 가지고 있는 것으로 파악된 바, 본 연구에서는 주식거래회전율을 이용하여 유동성위험 모방포트폴리오(NMP)를 구성한 후, 이를 시장위험포트폴리오(MKT), 기업규모효과 모방포트폴리오인 SMB와 함께 모형에 포함시켜 3요인 모형을 구성해 이것의 국내 주식수익률의 체계적 변동에 관한 설명력을 분석하였다. 그 결과, 이 유동성 요인을 포함한 3요인 모형이 Fama-French 3요인 모형보다 더 우월한 설명력을 보일 뿐 아니라, NMP 또한 유의한 설명력을 가지고 있는 것으로 나타났는데, 이것은 국내 주식수익률의 변동을 설명하는 체계적 위험요인 중 하나로서 HML 보다는 NMP가 더 우월한 실증적 근거를 가지고 있음을 의미하는 것으로 볼 수 있다.
This paper is an empirical investigation of the determinants of the cross- section of stock returns in Korea. While Fama and French’s (1993) three-factor asset pricing model is known to perform reasonably well in explaining the cross-section of stock returns in the U.S. and many other stock markets in developed countries, the model’s performance in explaining the cross-section of stock returns in Korea has been less than satisfactory. More specifically, there is mixed evidence for the existence of the book-to-market effect in the Korean stock market. Because Fama and French’s three-factor model is empirically motivated without firm theoretical grounds, it is difficult to argue that the book-to-market factor (HML) is a priced risk factor in the Korean stock market without clear empirical evidence for the book-to-market effect in the cross- section of stock returns in Korea. Consequently, an alternative asset pricing model is necessary to be used widely in Korea for the purpose of risk adjustment in estimating the cost of capital or performance evaluation. Using monthly stock returns and accounting information for the sample of non-financial firms belonging to the KOSPI index over the 1991~ 2007 period, we first investigate the cross-sectional relationship between stock returns and firm characteristics in the Fama-MacBeth regression framework. We find no evidence for the book-to-market or momentum effect. Firm characteristics which show significant relationship with the cross-section of stock returns in Korea are firm size measured by market capitalization and liquidity measured by turnover. Given the evidence for the size and turnover effects, we construct portfolios by sorting firms into four size groups and four turnover groups independently, similar to the way in which Fama and French (1993) construct their size and book-to-market portfolios. The sixteen size-turnover portfolios show clear patterns in average returns, decreasing in both firm size and turnover. Moreover, these size-turnover portfolios exhibit much bigger spread in average returns than the portfolios constructed using firm size and book-to-market (size-BM portfolios), which suggests that the size-turnover portfolios may be more useful and relevant test assets than the size-BM portfolios in the Korean stock market. The clear pattern of average returns in the size-turnover portfolios suggests that liquidity measured by turnover may be a priced risk factor in Korea. In order to estimate the magnitude of the risk premium associated with the size and turnover effects, we construct mimicking portfolios which are designed to capture the effects of firm size and turnover in the cross-section of stock returns, similar to the way in which Fama and French (1993) construct their mimicking portfolios, SMB and HML. Consistent with the results from the Fama-MacBeth regressions, the size factor (SMB) and the turnover factor (NMP) show significantly positive average returns while the average return of the book-to-market factor (HML) is positive but statistically insignificant. The magnitudes of the average returns for SMB and NMP are also economically significant at 0.99% per month for SMB and 1.19% per month for NMP. We then perform standard time-series and cross-sectional tests of asset pricing models using the size- turnover and size-BM portfolios as test assets. The asset pricing models we consider are the Fama-French three-factor model and our alternative three-factor model which replaces the book-to-market factor HML with the liquidity factor NMP. The main findings are as follows. When the size-turnover portfolios are used as test assets, the GRS F-test rejects the Fama- French three-factor model while it does not reject our alternative three-factor model. Moreover, the estimated risk premium for the liquidity factor NMP is both economically and statistically significant at 1.3% per month, which is also similar in magnitude to its average return of 1.19% per month. When the size-BM portfolios are used as test assets, the two models show broadly comparable performance. These main findings remain unchanged when we test the models using the first half or the second half of the sample period. In particular, we find that the liquidity factor NMP shows significant explanatory power for the cross-section of stock returns in each of the sub-sample periods. The Fama-French three-factor model is widely used in research and practice for risk adjustment and performance evaluation in both the U.S. and Korea. But the lack of clear empirical evidence for the book- to-market effect in Korea raises a question about the relevance of the book-to-market factor HML and the Fama-French three-factor model in understanding the determinants of stock returns in Korea. The findings in this paper suggest that our alternative three-factor model which incorporates a liquidity factor may be more useful and relevant for understanding the systematic variation of stock returns in Korea.
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This paper analyzes the behavior of return and volatility using the opening and closing prices of Korea Exchange (KRX) stocks and examines the impact of global trading of cross-listed Korean stocks on the volatility. For the analysis, this paper specifically examines ratios of variances of open-to-open relative to close-to-close returns as well as correlation of returns for adjacent trading and non-trading periods for the KRX stocks, and the impact of global trading on variance ratios and return correlations. Through the analysis, this paper finds evidence from the Korean market that supports the explanation offered by Amihud and Mendelson (1991) attributing greater volatility in opening prices to the preceding overnight non-trading period. This paper also documents that opening prices reflect temporary pricing deviation while such deviations are less likely to occur at closing, and thus these deviations are likely a main source of pricing errors causing the greater volatility at the opening of the market. Moreover, by examining the price behavior of cross-listed KRX stocks and comparing the results with those of non-cross-listed stocks, this paper provides additional evidence that the high volatility at the daily opening may be attributed to the overnight non-trading period that precedes it and that globalization of stock trading can reduce pricing errors and improve value discovery.
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본 연구는 주식시장의 가치평가오류가 기업의 인수합병시장에 미치는 영향을 주주가치와 주가변동성의 변화 및 이 두 변수의 상호 연관성에 기초하여 고찰하였다. 먼저, 합병공시 전후의 합병기업의 주가는 양(+)의 초과수익률을 시현하여 기존연구와 일관성을 보였으나, 합병완료 후에는 주가가 큰 폭으로 하락함을 발견하였다. 또한 합병기업의 경영자 스톡옵션의 가치가 상대적으로 높아 과대평가되었을 가능성이 있는 기업은 공시전 후의 초과수익률이 낮았고 합병완료 이후 주가하락폭도 컸다. 한편 합병기업의 주가변동성은 합병완료 이후 유의하게 하락하였으나 합병기업의 경영자가 스톡옵션을 보유한 경우에는 그 하락폭이 유의하지 않았다. 그리고 주가변동성의 하락폭이 큰 기업일수록 합병에 따른 주가반응이 덜 긍정적인 것으로 확인되었다. 이와 같은 결과는 과대평가된 기업이 주식교환을 통해 과대평가되지 않은 타기업을 인수함으로써 기업가치를 극대화하고자 한다는 가치평가오류가설과 부합되는 것으로 보인다.
Recent research on corporate acquisitions suggests that misvaluation in the stock market affects the M&A activities. The management of an overvalued firm may be tempted to maximize its shareholder value by exchanging its overvalued stocks with those of less overvalued firms (Shleifer and Vishny, 2003; Rhodes- Kropf et al., 2005). Consequently, using stocks as a medium of payment in a merger can be interpreted as a signal that the acquiror may have been overvalued; thus, the market response could be less favorable (Dong et al., 2006). In order to prevent such a negative effect of using stocks, an acquiror whose firm is not overvalued prefers to make a cash offer (Shleifer and Vishny, 2003). Another important implication of the misvaluation hypothesis is that corporate acquisitions by an overvalued firm tend to reduce the stock price volatility as long as non-overvalued target firms are found in different industries from the overvalued firm (Cai and Vijh, 2007). This hypothesis contrasts with the agency view that a decrease in the stock price volatility after a merger results from the managerial incentives, seeking the insurance effects on its career by diversifying firms under its control. This paper examines changes in the shareholder value and the stock price volatility following merger announcements and tests whether the corporate acquisition in the absence of strategic choice of a medium of payment incurs a signaling effect of overvaluation. To do so, we introduce a simple model of a merger in which the merger announcement can be considered a signal of overvaluation. In the model, the management of an acquiring firm has private information on the synergy of acquisition and the value of the firm. We show that the management chooses acquisitions regardless of the synergy if the firm is overvalued, while, otherwise, it chooses acquisitions only when the acquisition synergy is large enough. As a result, a corporate acquisition by a firm that is potentially overvalued may raise a concern on the possibility of adverse selection. In general, the adverse selection can be avoided if the management can strategically choose the medium of the payment. In this paper, however, we insist that due to the unique feature of Korean M&A market in which cash offers are not allowed in M&A transactions, the valuation effects of the merger announcement in Korea reflect both synergy expectation and the concerns about adverse selection. We provide empirical analyses on whether the stock market reactions to the merger announcement are less favorable as the acquiror is more likely to be overvalued. We choose the value of the stock options that the management of the acquiror is endowed as a proxy variable to determine whether the firm is overvalued. More specifically, we classify sample firms whose stock options for the management are in-the-money (ITM firms, hereafter) to be more likely to be overvalued and those whose stock options are out-of-the-money (OTM firms, hereafter) to be less likely. Empirical results show that first, ITM firms exhibit a lower cumulative abnormal return than OTM firms do following the merger announcement. Furthermore, ITM firms exhibit a large decrease in the stock price after the completion of the merger while OTM firms do not. This result is consistent with the misvaluation hypothesis that overvalued firms attempt to use the overvalued shares of stock to acquire other firms to maximize the shareholder value. For ITM firms, an increase in the stock price due to the expectation of merger synergy is at least partially countervailed by concerns on adverse selection. On the other hand, OTM firms experience a greater increase in the stock price since adverse selection is less severe. Second, we find that the cumulative abnormal returns to the merger announcement are positively related with changes in the stock price volatility after the completion of the merger. In other words, firms with a greater decrease in the stock price volatility exhibit less increase in the stock price. This result supports that a decrease in stock price volatility may be a consequence of the managerial attempt to utilize the overvalued stocks to acquire firms at a lower price than the target company deserves, not necessarily an outcome of agency problems. Lastly, we find that firms whose management has stock options do not exhibit a decrease in the volatility of their stock prices, while those whose management does not have stock options do. This result is consistent with the notion that firms whose management has stock options are less likely to pursue diversification than firms whose management does not. In addition, our empirical results turned out to be robust to the use of pre-merger stock performance as another proxy variable of overvaluation.
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