Does National Pension Service’s Trading Destabilize Korean Stock Market (Does National Pension Service’s Trading Destabilize Korean Stock Market)

서지정보

· 발행기관 : 한국증권학회
· 수록지 정보 : Asia-Pacific Journal of Financial Studies / 37권 / 3호 / 501 ~ 536페이지
· 저자명 : 박종호, 엄경식

초록

PIN, defined by Easley and O’Hara as the probability of information-based trading, has
been used as a proxy for private-information risk on individual stocks for various fields
of financial studies in the U.S. In this paper, we examine whether PIN is useful in understanding
the cross-sectional relationship between stock returns and private-information
risk in the Korean stock markets. Our analysis results indicate that the PIN is not useful;
therefore, we further examine to find out possible reasons for this and alternative ways
to measures private-information risk on individual stocks.
Our analyses are as follows.
•Using the method presented in Easley, Hvidkjaer, and O’Hara (2002, hereafter EHO),
we estimate PIN using intraday transaction data on individual stocks. Then, we analyze
the cross-sectional relationship between the estimated PIN and excess returns
using two methods. The first method analyzes the fifteen portfolios formed by firm
size and PIN. The second method uses an asset pricing model with beta, size,
book-to-market ratio, and PIN as explanatory variables. Then, a regression analysis
is conducted using the Fama and French (1992) method. To confirm the robustness
of our tests, we estimate PIN for a period of six-months prior and that of three-months
prior against the returns in the current period.
•Based on criticism against the EHO model by Duarte and Young (2007, hereafter
DY), we calculate the correlations between the number of buyer-initiated trades and that of seller-initiated trades in the Korea Exchange (KRX). Then, we compare them
with the correlations inherent in the EHO and DY (2007) models.
•We estimate adjusted PIN (AdjPIN) using intraday transaction data on individual
stocks and conduct the same cross-sectional analyses as we have done with the PIN.
The sample period of the data is from January 1997 to December 2005. The sample
stocks are common stocks listed on the Securities Market Division of the KRX which have
been traded during more than 60 days a year.
We obtain the following results. First, the cross-sectional relationship between PIN and
portfolio excess returns is economically insignificant when we analyze the relationship using
PIN estimated from last year’s data and the firm size measured by market capitalization
at the end of the previous year. In contrast, AdjPIN generally has an economically
significant relationship with portfolio excess returns. Second, reducing the estimation interval
for PIN to a quarter does not help in explaining portfolio returns. Only when we analyze
the relationship between PIN in the current period and current portfolio returns, then
do we understand their relationship being positive and statistically significant. This indicates
that generally the PIN does not explain portfolio returns, but only useful for detecting
the private-information risk that occurs during an extremely short period of time.
Third, the KRX data reflects positive correlations between buyer-initiated trade and seller-
initiated trade. However, the EHO-PIN model reflects negative ones, whereas the
DY-AdjPIN model shows the same positive correlations as the real world results from using
KRX data. This indicates that the EHO model should be revised in order to explain the
empirically stylized facts found in both the KRX and US exchanges. Fourth, in contrast
to PIN, the relationship between AdjPIN and portfolio excess returns is statistically significant
at a 1% level from cross-sectional regressions. Although the AdjPIN does not explain
the stock returns in NYSE and AMEX in DY (2007), it does seem to do so in the
KRX; a difference of 10 percentage points in AdjPIN between two stocks amounts to the
difference in required rate of returns of 1.20 percent per month.

영어초록

PIN, defined by Easley and O’Hara as the probability of information-based trading, has
been used as a proxy for private-information risk on individual stocks for various fields
of financial studies in the U.S. In this paper, we examine whether PIN is useful in understanding
the cross-sectional relationship between stock returns and private-information
risk in the Korean stock markets. Our analysis results indicate that the PIN is not useful;
therefore, we further examine to find out possible reasons for this and alternative ways
to measures private-information risk on individual stocks.
Our analyses are as follows.
•Using the method presented in Easley, Hvidkjaer, and O’Hara (2002, hereafter EHO),
we estimate PIN using intraday transaction data on individual stocks. Then, we analyze
the cross-sectional relationship between the estimated PIN and excess returns
using two methods. The first method analyzes the fifteen portfolios formed by firm
size and PIN. The second method uses an asset pricing model with beta, size,
book-to-market ratio, and PIN as explanatory variables. Then, a regression analysis
is conducted using the Fama and French (1992) method. To confirm the robustness
of our tests, we estimate PIN for a period of six-months prior and that of three-months
prior against the returns in the current period.
•Based on criticism against the EHO model by Duarte and Young (2007, hereafter
DY), we calculate the correlations between the number of buyer-initiated trades and that of seller-initiated trades in the Korea Exchange (KRX). Then, we compare them
with the correlations inherent in the EHO and DY (2007) models.
•We estimate adjusted PIN (AdjPIN) using intraday transaction data on individual
stocks and conduct the same cross-sectional analyses as we have done with the PIN.
The sample period of the data is from January 1997 to December 2005. The sample
stocks are common stocks listed on the Securities Market Division of the KRX which have
been traded during more than 60 days a year.
We obtain the following results. First, the cross-sectional relationship between PIN and
portfolio excess returns is economically insignificant when we analyze the relationship using
PIN estimated from last year’s data and the firm size measured by market capitalization
at the end of the previous year. In contrast, AdjPIN generally has an economically
significant relationship with portfolio excess returns. Second, reducing the estimation interval
for PIN to a quarter does not help in explaining portfolio returns. Only when we analyze
the relationship between PIN in the current period and current portfolio returns, then
do we understand their relationship being positive and statistically significant. This indicates
that generally the PIN does not explain portfolio returns, but only useful for detecting
the private-information risk that occurs during an extremely short period of time.
Third, the KRX data reflects positive correlations between buyer-initiated trade and seller-
initiated trade. However, the EHO-PIN model reflects negative ones, whereas the
DY-AdjPIN model shows the same positive correlations as the real world results from using
KRX data. This indicates that the EHO model should be revised in order to explain the
empirically stylized facts found in both the KRX and US exchanges. Fourth, in contrast
to PIN, the relationship between AdjPIN and portfolio excess returns is statistically significant
at a 1% level from cross-sectional regressions. Although the AdjPIN does not explain
the stock returns in NYSE and AMEX in DY (2007), it does seem to do so in the
KRX; a difference of 10 percentage points in AdjPIN between two stocks amounts to the
difference in required rate of returns of 1.20 percent per month.

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