KOSPI Stock Expected Returns/Risks
Instructions
- Emerging market countries are randomly allocated to each student. You could find the country allocation on QMplus (assessment tab). You could not change or swap your country with another student. South Korea
- Data: Download the historical daily stock market index data from Yahoo finance of the stock market index of your country (local currency). In appendix 1, you will find the name of the stock market index and the ticker. Download the exchange rate of the local currency (base) against the US dollar (quote). Download the annual returns of the MSCI World Index (USD) here.
- Part 1: Risks and Returns o Calculate the (average) annual return of the stock index (use Adj. Close) over the last 10 years (2013-2022) in USD and compare the return with the (average) annual returns of the MSCI World Index.
o Calculate the annual volatility(standard deviation)of the stock price index over the period 2013-2022 in USD and compare the volatility with the volatility of the MSCI world index.
o What is the correlation coefficient between the returns of the stock price index in USD with the returns of the MSCI world index? Compare your findings with Bekaert and Harvey (2015). Does investing in the stock price index offer potential diversification benefits?
- Part 2: Country risk o In this part you discuss specific country risks. o Financial crises: Use the financial crisis data from week 6 and discuss whether the country experienced any financial crisis in the last two decades. Discuss the financial crisis (causes and impact) shortly. You could find country specific information on imf.org (e.g. Article IV consultation reports of the country).
o Institutions: discuss the degree of shareholder protection in your country. You could use this dataset as source. Compare your country with other countries. o Sovereign default risk: Discuss the sovereign risk of your country. Compare your country with other countries. Search for the most recent 5-year credit default swap (CDS) rate or the credit rating from S&P, Fitch or Moody’s.
- Try to apply concepts seen in class and that are pertinent to the analysis at hand.
KOSPI STOCK EXPECTED RETURNS/RISKS
by (Name)
The Name of the Class (Course)
Professor (Tutor)
The Name of the School (University)
The City and State where it is located
The Date
KOSPI Stock Expected Returns/Risks
Part 1
The KOSPI or the Korea Composite Stock Price Index is a capitalization-weighted index comprising of all common stocks traded on the Korea Stock Exchange or the stock market division. The annual returns of the KOSPI stock index over the last 10 years (2013-2022) in percentage are shown in the table below.
Year
Annual Returns (%)
2013
0.72%
2014
-4.76%
2015
2.39%
2016
3.32%
2017
21.76%
2018
-17.28%
2019
7.67%
2020
30.75%
2021
3.63%
2022
-24.89%
(Yahoo, 2023)
The average annual return over the last 10 years (2013-2022) in 2.33%.
The MSCI World Index is a broad global equity index that represents both large and mid-cap equity performances in 23 market developed countries across the Americas, Europe, Middle East, and Pacific. The annual returns of the MSCI World Index over the last 10 years (2013-2022) in percentage are shown in the table below.
Year
Annual Returns ((%))
2013
27.37%
2014
5.50%
2015
-0.32%
2016
8.15%
2017
23.07%
2018
-8.20%
2019
28.40%
2020
16.50%
2021
22.35%
2022
-17.73%
(MSCI, 2022)
The average annual return over the last 10 years (2013-2022) in percentage is 10.51%.
The average annual return of the MSCI World Index is considerably higher than that of the KOSPI (10.51% vs. 2.33%).
The average volatility of KOSPI over the period 2013-2022 in percentage is 0.52% while that for the MSCI World Index is 0.50%. The correlation coefficient between the returns of the stock price index in percentage is 0.7204. This means that the two indexes have a strong positive correlation (KOSPI’s annual returns are parallel with those of the MSCI World Index). Investing in KOSPI does not offer potential diversification benefits. KOSPI offers significantly lower annual returns compared to the MSCI World Index (2.33% versus 10.51%) and is also relatively more volatile (0.52% versus 0.50%).
These findings support the study by Bekaert et al. (2016), which postulated that each country poses a unique political risk to international investments. KOSPI’s lower annual return and higher annual volatility may be an indication of South Korea’s higher local economic and political risk when compared to the MSCI World Index. The latter is a broad global equity index and the economic and political risk of the 27 market-developed countries is likely to be markedly lower than that of South Korea.
Part 2
The expected annual return on the $100 million investment is averagely 2.33%. The risks of investing in the Korean Stock Market relate to the country’s post-pandemic economic challenges. The country also relies heavily on imports and the geopolitical tensions with its neighbor, North Korea. Furthermore, Korean stocks have ...
π Other Visitors are Viewing These Harvard Coursework Samples:
- Accounting Coursework. Accounting, Finance, SPSS Coursework7 pages/β1925 words | Harvard | Accounting, Finance, SPSS | Coursework |
- Risk Report on FirstGroup PLC for Institutional Investor4 pages/β1100 words | Harvard | Accounting, Finance, SPSS | Coursework |
- Financial Statement Analysis Of M&S Accounting, Finance, Coursework7 pages/β1925 words | 5 Sources | Harvard | Accounting, Finance, SPSS | Coursework |
- Calculation and Explanation of the Financial Ratios of CT PLC2 pages/β550 words | 5 Sources | Harvard | Accounting, Finance, SPSS | Coursework |
- Success in Business: Apple Inc. Case6 pages/β1650 words | Harvard | Accounting, Finance, SPSS | Coursework |
- Why Should People Invest In Your Stock10 pages/β2750 words | 1 Source | Harvard | Accounting, Finance, SPSS | Coursework |
- Job Reflective Log: My Skills, Experiences, Weaknesses and Strengths4 pages/β1100 words | Harvard | Accounting, Finance, SPSS | Coursework |