A Recent Analysis of Markov Regime Shift Behaviors of the Korean Stock Market

초록

The recent outbreak of COVID-19 has demonstrated a notable regime shift behavior in stock markets, similar to the patterns observed during the Asian financial crisis and the global financial crisis. This study analyzes the effects of foreign exchange rates and interest rates, along with the consumer price index, currency volume, and trade volume, on the Korean stock market over the period from January 1991 to December 2023. We employed a two-regime Markov regime switching model. The consumer price index, currency volume, and trade volume were found to have no significant effect on Korean stock price volatility. In regime 1, characterized by low volatility, both foreign exchange rates and interest rates had a significant impact on stock price volatility. In regime 2, characterized by high-volatility, only foreign exchange rates were found to be significant. The probability of remaining in regime 1 with low-volatility was higher than the probability of remaining in regime 2 with high-volatility. Among the periods classified as regime 2, the one corresponding to the Asian financial crisis lasted five years, while the one during the COVID-19 pandemic was five months.

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