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Political elections and foreign investor trading in South Korea's financial markets

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  • Chien-Liang Chiu
  • Chun-Da Chen
  • Wan-Wei Tang

Abstract

This article investigates the relationship between foreign investors' trading behaviour and political election events in South Korea and the effect of the relationship on the financial markets via a bivariate GARCH (1,1) model analysis. The empirical results show that the KOSPI 200 index return (total trading volumes of spot) and the derivatives volume have a negative (positive) relationship for foreign investors. South Korea shifted to a free floating exchange rate system, however, it did not have an effect on foreign investors' trading behaviour. In particular, foreign investors showed significant decrease in trading options contracts during the parliamentary election periods and the parliamentary elections stabilized derivatives trading volatility. It is evident from the results that the presidential elections create far more financial uncertainty in comparison to parliamentary elections.

Suggested Citation

  • Chien-Liang Chiu & Chun-Da Chen & Wan-Wei Tang, 2005. "Political elections and foreign investor trading in South Korea's financial markets," Applied Economics Letters, Taylor & Francis Journals, vol. 12(11), pages 673-677.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:11:p:673-677
    DOI: 10.1080/13504850500190097
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    References listed on IDEAS

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    1. MacRae, C Duncan, 1977. "A Political Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 239-263, April.
    2. Pedro Santa‐Clara & Rossen Valkanov, 2003. "The Presidential Puzzle: Political Cycles and the Stock Market," Journal of Finance, American Finance Association, vol. 58(5), pages 1841-1872, October.
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    1. Cho-Min Lin & Yen-Hsien Lee & Chien-Liang Chiu, 2010. "Friends or enemies? Foreign investors in Taiwan," Applied Economics Letters, Taylor & Francis Journals, vol. 17(10), pages 977-982.
    2. Sherif, Mohamed & Chen, Jiaqi, 2019. "The quality of governance and momentum profits: International evidence," The British Accounting Review, Elsevier, vol. 51(5).
    3. Wielechowski, Michał & Czech, Katarzyna, 2025. "U.S. Presidential Elections And Agricultural Market Volatility. Is There A “Trump Effect” On Grain Commodities?," Roczniki (Annals), Polish Association of Agricultural Economists and Agribusiness - Stowarzyszenie Ekonomistow Rolnictwa e Agrobiznesu (SERiA), vol. 2025(1).
    4. Yaser Abolghasemi & Stanko Dimitrov, 2021. "Determining the causality between U.S. presidential prediction markets and global financial markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4534-4556, July.
    5. Ahmed, Walid M.A., 2017. "The impact of foreign equity flows on market volatility during politically tranquil and turbulent times: The Egyptian experience," Research in International Business and Finance, Elsevier, vol. 40(C), pages 61-77.
    6. A.E. Osuala & U.A. Onoh & G.U. Nwansi, 2018. "Presidential Election Results and Stock Market Performance: Evidence From Nigeria," Applied Economics and Finance, Redfame publishing, vol. 5(2), pages 117-124, March.

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