earticle

영어

In this study, I examine the mutual spillover effect among trade balance, stock price, and foreign exchange rate denoted as value of Korean won per one US dollar during the monthly sample period from the beginning of 1980 to the end of 2013, using the multivariate GARCH BEKK model framework. Major findings are as follows. First, from the estimation results of the mean equations in the multivariate GARCH model, trade balance is positively affected by rise in the stock market and won depreciation in the foreign exchange market, reassuring the price effect in the capital market and J curve effect in the foreign exchange market. Second, in the symmetric GARCH BEKK model estimation of the variance equations in the above multivariate model, the shock from the capital market affects the volatility of trade balance positively, whereas that from the trade balance does not affect the capital market, showing the transmission mechanism between capital and real markets. Third, on the contrary, in the asymmetric GARCH BEKK model estimation of the variance equations in the above model, the downside shock from the trade balance change has a significant positive effect on the stock market volatility whereas those from the stock and exchange market do not show any positive spillover effects to the trade balance. Fourth, results from the sub-sample period of pre- and post- IMF bailout program of 1997 are different from those from the total sample period owing to the difference of openness in the capital market. The downside shocks from the trade balance and the stock market to the foreign exchange market in the pre-IMF subsample period turned out to be significantly negative, whereas those in the post-IMF subsample period showed significantly positive signs. This can be explained as an evidence of well development of foreign exchange market liberalization plan during the post-IMF bailout program. In other words, foreign exchange market during the post-IMF period reflects changes in real and capital markets more evidently. It is confirmed that continuous trade surplus is essential for stock market stabilization from the above results.