Idiosyncratic volatility and interruption mechanisms in South Korean stock markets

Purpose The purpose of this study is to examine how the volatility interruption (VI) mechanisms affect idiosyncratic volatilities in Korean stock markets. Design/methodology/approach Collecting South Korea Stock Market (KOSPI) data from June 15, 2015 March 31, 2019, we collect each residual, εi,t , three different estimated models: capital asset pricing model (CAPM), FF3 and FF5. To estimate conditional volatility, authors employ two time-varying measurements: GARCH TGARCH. Findings results show that increases when prices reach upper lower static limits, indicating implementation adopting VI mechanism neither stabilize market conditions nor reduce excess along with existence price limits. Originality/value Although regulators policymakers improve advanced mechanism, empirical adverse effect mechanism. Not allowing investors earn above average returns without accepting risks makes markets inefficient mechanisms.