earticle

영어

“A volatility interruption (VI) is a sophisticated microstructure mechanism providing cooling-off periods and effective price discovery functionalities in brief periods of abnormal volatility for an individual stock” (Eom, Ra, Park, and Ahn, 2015). VIs consist of two types: dynamic and static. The dynamic VI is invoked when a price fluctuation due to a single order exceeds a predetermined range, e.g., ±2% in the Korea Exchange (KRX). The static VI is activated when a cumulative price fluctuation due to multiple orders and transactions exceeds a predetermined range, e.g., ±10%. On September 1, 2014, KRX preemptively adopted the dynamic VI. Then, on June 15, 2015, the exchange additionally introduced the static VI while simultaneously expanding the price limit to ±30% to alleviate a wider range of price changes. In this paper, focusing on the adoption that occurred on June 15, 2015, we examine whether the newly introduced static VI, in addition to the existing dynamic VI, produces economic benefits consistent with the purpose of introducing VIs, such as price stabilization and discovery. In this process, we also identify the characteristics involved in dynamic and static VI invocations and discuss what type of VIs or price stabilization mechanisms are best suited to the Korean stock market. The related domestic and foreign papers are limited in number. The unique feature of this paper is the direct comparative analysis of the economic effectiveness of both dynamic and static VIs. We were able to perform this analysis because KRX adopted the dynamic and static VIs consecutively. In addition, the price-limit system, which is unique to the Korean stock market, allows us to discuss the economic relationship between the static VI and price limit. We analyze 1,937 stocks listed on the KOSPI and KOSDAQ markets in KRX over 2 periods of 48 trading days each before and after June 15, 2015, when the static VI was introduced. The previous period denotes the period when only the dynamic VI was implemented, and the latter period refers to the period when both the dynamic and static VIs were implemented in tandem with an increase of the price limit to ±30%. The results of our analyses using trade and quote data are as follows. First, the stocks for which the static VI is invoked are mainly small and medium-sized, low-priced, and highly volatile, as are those for which the dynamic VI is invoked. Unlike the dynamic VI, however, the static VI tends to be invoked more frequently as trading volume increases, suggesting that the static VI invocation is a phenomenon that occurs when investors’ opinions vary. The static VI is invoked more often than the dynamic VI in terms of the number of stocks or frequencies. Second, there is little relation between dynamic VI invocation and the hit occurrence of upper and lower limits. Meanwhile, the static VI has a significant influence on the hit occurrence of upper and lower limits in direction and magnitude. This suggests that the static VI plays a role in enforcing narrow upper and lower limits. However, assuming that the intrinsic volatility of the KOSPI and KOSDAQ markets remained constant, the expansion of the price limit to ±30% appears to have increased the realized volatility of these markets by about 14~15%. Third, the price stabilization and price discovery effects of the dynamic VI are fairly solid, and the effects themselves are consistent regardless of the introduction of the static VI or the expansion of the price limit. These effects are also almost the same quantitatively and qualitatively as those of the dynamic VI that was adopted in September 2014. The static VI, in contrast, appears to contribute to some degree to price discovery, but greatly impairs price stability. This is attributable to the static VI and price limit, which function fairly similarly, being implemented at the same time. The VI system in Korea was adopted to eventually replace the existing price-limit system, which has been evaluated as ineffective in preventing temporarily abnormal fluctuations in prices that may occur in high-frequency trading, manipulative trading, etc. Our results show that the dynamic VI is serving its intended purposes relatively well, while the static VI has a significant negative impact on price stability. This seems to be due to a conflict between the designed functionality of the static VI and its practical role as a narrow upper and lower price limit within the existing price-limit system. In addition, the dynamic VI has a limited effect on the establishment of an equilibrium price immediately after the VI invocation period in cases where the stock price overshoots to a remarkable level just before the dynamic VI invocation. Therefore, in-depth verification of the various parameters (e.g., ±10% variation in the static VI) that constitute the specific activating requirements of the dynamic and static VIs adopted by KRX is advised.

한국어

2015년 6월 15일 한국거래소(KRX)는 정적 VI를 추가 도입하면서 가격제한폭도 ±30%로 확대하였다. 본 논문은 KRX 정적 VI의 가격안정화와 가격발견 효과를 동적 VI와 비교 분석한다. KRX 상장 1,937종목을, 정적 VI 도입일 전후 각 48일간의 TAQ 자료로 분석한 결과는 다음과 같다. 첫째, 정적 VI는 동적 VI보다 더 많은 종목에서 더 자주 발동한다. 둘째, 동적 VI 발동은 상․하한가 발생과 관련이 거의 없다. 반면, 정적 VI 발동은 방향성이나 크기 면에서 상․하한가 발생에 적잖은 영향을 미쳐, 정적 VI가 기존의 가격제한폭제도 내에서 폭이 좁은 또 하나의 상․하한가 역할을 하고 있음을 시사한다. 한편, 가격제한폭 ±30% 확대는 일정 전제 하에 KRX의 실현 변동성을 약 14~15% 증가시킨다. 셋째, 동적 VI의 가격안정화나 가격발견 효과는 상당히 양호하며 효과도 일관성 있게 나타난다. 이에 비해 정적 VI는 가격발견에 일정 부분 공헌은 하지만 가격안정성은 크게 해치는 것으로 나타난다. 정적 VI와 가격제한폭 확대가 맞물려 (중복) 시행되는 것이 그 원인이라 판단된다.