The Impact of the Euro Carry Trade on the Korea Stock Price Volatility : Granger Causality Test

다국어 초록 (Multilingual Abstract)

Purpose - This study is to examine the relationship between the euro carry trade market and the Korea stock market during global financial crisis. Carry Trade is a strategy of simultaneously shorting a low-yielding currency and longing a high-yielding currency raises the concern on its impact on global asset prices. In this exercise, I examine the implications of the Euro carry trade for stock market in a Korea.
Research design, data, and methodology - To accomplish the purpose of this study, analysis data are daily returns data of the Euro carry trade market and Kospi 200 market for all trading days in the time period from June 14, 2006 to March 4, 2009. This study investigates the Grange causality in returns spillover effects between the euro carry trade and stock markets. The causality relationship in daily returns between the carry trade and stock markets is examined using the vector autoregressive VAR(5) model.
Results -The empirical results of this study are summarized as follows: First, the correlation coefficient between the euro carry trade market and KOSPI market is relatively low and estimated by 0.0949. Second, the causality in returns from carry trade to Korean stocks is not visible prior to the financial crisis. However, during global financial crisis, Granger causality relation between two markets is bidirectional.
Conclusions - Consequently, based on the thus results, the euro carry trade market and Korea stock market interact more during global financial crisis than ordinary times. This is supportive of the market perception that the euro carry trade affects Korean stock market activities. These findings lend support to the concern about the disruptive effects of carry trade for the global financial crisis. Further, the empirical carry trade effect could be interpreted as an indirect evidence of the general notion that global liquidity affects asset prices.

목차 (Table of Contents)

• Abstract
• 1. 서론
• 2. 표본자료
• 3. 연구방법론
• 4. 실증분석
• 5. 요약 및 결론
• References