한국생산성학회

In this paper, I analyze impacts on Korean individual industry stock market index by changes in macroeconomic variables such as one year monetary stabilization bond (MSB) yield chosen as Korean representative interest rate, Korean won - US dollar foreign exchange rate, and OPEC basket crude oil price. With the sample of 5,543 daily observations from the beginning of 1997 to the end of June, 2019 the summary findings from the regression results of GJR-GARCH-X model are as follows. Interest rate is shown to have significant impacts on only 3 industry stock index returns out of total 16 individual industries, whereas it is confirmed to affect positively nearly none of the stock indices volatilities except for the insurance industry. The reason for the insignificancy of the interest rate impact is due to a fact that most investors can react to the government’s monetary policy as perfectly as possible because the MSB yield does not contain any individual default risk premium. Won-Dollar foreign exchange rate is shown to be the most powerful risk factor in Korea because it has significant impacts on not only 11 industry stock indices returns including 7 manufacturings and 4 services but also nearly all the industry stock indices volatilities with only 3 exceptions of food & beverage, textile & garments, and paper & wood industries. The signs for the significant impacts on the returns of the industries are shown to be negative in the 9 sectors and positive in the two sectors as electrics & electonics and transportation equipments. The negative signs reflect the fact that industry return turns to negative when the FX rate goes up as a result of the deteriorating country fundamentals and the positive signs reflect the fact the industry return turns to positive as the price competitiveness improves as a result of the weakened country currency value. Crude oil price, contrary to the former two factors, shows relatively the same effects to the Korean stock market as expected, affecting significantly major export-oriented industry stock returns and volatilities including petrochemicals, machinery, and electrics & electronics. Considering the fact that won-US dollar FX rate is shown to be the most important risk factor in the Korean stock market affecting significantly almost all the return volatilities that belong to either domestic demand sectors or export oriented sectors, the need for fine tuning policy designs for stabilizing won-Dollar FX rate is clearly verified.