(Seoul = Yonhap News) Reporters Hwang Cheol-hwan and Kwak Yoon-a = With the global stock market fluctuating greatly following the U.S. Democratic Party's landslide victory in the midterm elections, an event is being held where experts from all walks of life can come together on the topic of stock market volatility, attracting attention.
The Korea Securities Society, the Korea Society of Finance, and the Institute of Finance and Economic Research at Seoul National University held a joint symposium on the 10th at the Korea Growth Finance Auditorium in Yeouido under the theme of 'Analysis of stock market volatility factors and management measures.'
Jang Geun-hyuk, a senior researcher at the Korea Capital Market Institute who was in charge of presenting the topic, said, “It is believed that factors unique to the Korean stock market played a role in the significant increase in KOSPI volatility compared to major countries this year.”
KOSPI daily return volatility, which was around 1.4% last year, soared to 4.1% from January to July of this year, and remains at 2.9%, double last year's level, even after the plunge in July (August to October) due to the global semiconductor adjustment.
Senior Research Fellow Jang said, “The background of the rise in volatility is the semiconductor concentration structure and the supply and demand conflict between investors,” and pointed out that the KOSPI share of two stocks, Samsung Electronics [005930] and SK Hynix [000660], soared from 23% to more than 50% in early 2025, greatly increasing the sensitivity of the KOSPI to shocks in the semiconductor industry.
In particular, it was analyzed that from January to July of this year, volatility was further amplified as foreign and institutional selling (KRW 185 trillion) and individual and securities buying (KRW 170 trillion) collided.
He said that unlike other factors such as oil price and interest rate volatility, the impact of memory semiconductor volatility on KOSPI volatility is still maintained, adding, “If industry shocks recur, volatility may increase again,” and that measures are needed to alleviate short-term volatility.
Specifically, it was proposed to ▲expand the use of weight-restricted indices ▲elaborate volatility mitigation devices that reflect the volatility and liquidity of each stock ▲reduce price shock through an inter-institutional bulk trading platform.
Choi Jae-won, director of Seoul National University's Institute of Finance and Economics, who was the second presenter, said that we should reexamine the common belief that the single-stock leveraged index exchange fund (ETF), which uses Samsung Electronics and SK Hynix as underlying assets, which were launched in May and were pointed out as the main culprit of volatility, is true.
He explained, "Stock volatility was high even before the launch of the leveraged ETF, and the impact of the global memory semiconductor shock was even greater. Based on the data, it is difficult to find clear evidence that rebalancing increased volatility or drove stock prices in one direction."
If rebalancing had increased volatility, volatility should have been greater in the 30 minutes before the market close, when rebalancing usually takes place, but it did not.
Rather, he said, “Individuals’ purchases of leveraged ETFs significantly reduced the impact of rebalancing,” and “In May to July, when funds came in, purchases (of underlying stocks resulting from individual ETF purchases) largely offset rebalancing sales on down days.”
This means that when there was a lot of selling volume for leveraged ETF rebalancing due to the price drop of Samsung Electronics and SK Hynix, the volatility was partially offset by the influx of funds from individual investors to purchase leveraged ETFs at low prices.
Therefore, Director Choi argued, “Regulations that restrict individual trading, such as raising the basic deposit amount, cannot be seen as a means of reducing volatility, and may actually reduce the offsetting effect of personal funds.”
As stock market volatility reached extremes, financial authorities implemented supplementary measures for single-stock leverage and inverse products starting July 31, but this means that raising the basic deposit may not have had much of an effect.
Director Choi pointed out, “There is a need to separate the issues of market volatility and investor protection,” and added, “It is appropriate to evaluate increases in basic deposits as a means of reducing personal losses, and it is difficult to view them as volatility measures.”
Director Choi also responded to the suspicion that high-frequency trading (HFT) uses the rebalancing point to conduct advance trading, saying, “HFT can be seen as playing a market-making role in reducing the shock of rebalancing by supplying liquidity,” adding, “Without this transaction, the market closing price could have been pushed further.”
He advised, “Because financial policy can produce unexpected results, it is more important to have a policy that broadens the basis for the market to absorb shocks on its own rather than regulating leveraged ETF trading,” and added, “For HFT, it would be desirable to focus regulation on suppressing imaginary orders rather than restricting the trading itself.”
In the panel discussion that took place after the announcement, it was analyzed that the won/dollar exchange rate continued to decline after the base interest rate increase, increasing the incentive for foreigners to sell, and thus increased volatility.
Kim Byeong-yeon, director of the investment strategy department at NH Investment & Securities, said, “Korea was highly volatile, and Taiwan, which has a similar industrial structure (to Korea), was not so volatile,” citing the strong won and low dividend payout ratio as the reasons for this difference.
He pointed out, “Even though the dollar was not that weak, the won was particularly strong, creating a situation in which foreigners could oversell (KOSPI),” and “(Korea) quickly raised the base interest rate, which affected the exchange rate and led to rapid selling by foreigners.”
For foreigners who exchange dollars for won and invest in the domestic stock market, if the won continues to strengthen, the rate of return in dollar terms will increase.
He continued, “Korea’s dividend payout ratio is almost half the average of emerging countries,” and added, “While there are doubts about the structural growth of the semiconductor industry, I think it is the dividend payout ratio that can support confidence in the domestic stock market.”
He said, “In the past, when discussions on enhancing shareholder value were active in Korea, many foreigners came in.” He added, “I think that the confidence of foreigners (in the domestic stock market) will increase and as a result, volatility can be controlled only when the improvement of shareholder value, advancement of the capital market, and dividend payout ratio are taken first.”
Shin Joong-ho, head of the LS Securities Research Center, said, “There is no other industry in Korea that can support the market when a semiconductor downcycle occurs,” and added, “Government support is needed for industries that can increase market defense.”
He also added, “Rather than institutional support focusing on currently leading industries and leading products, we need to devise systems such as tax benefits that can encourage long-term investment by investors.”
