Affiliations: [a] Department of Information and Industrial Engineering, Yonsei University, South Korea | [b] Department of Statistics, Keimyung University, South Korea | [c] Resolution & Finance Corporation, South Korea
Correspondence:
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Corresponding author: Kyong Joo Oh, Ph.D., Associate Professor, Department of Information and Industrial Engineering, Yonsei University, 134, Shinchon-Dong, Seodaemun-Gu, Seoul 120-749, South Korea. Tel.: +82 11 232 2991; E-mail: [email protected].
Abstract: A stable stock market is essential to the entire financial market and economy stressing the significance of monitoring the stability of the stock market. In this paper, we propose stock market stability index (SMSI), which monitors market stability through a statistical model. SMSI is based on the idea that the proper statistical model for the past stable period would significantly fail when the current market becomes unstable (see also Kim et al. [9]). To construct SMSI, the behavior of the regular stock market index on the past stable period is investigated with the asymptotic stationary autoregressive model (ASAR) proposed mainly for non-stationary time series by Kim et al. [4]. Major advantage of this approach is to provide the probability (or p-value) of the current stock market's stability. As an empirical example, SMSI for the Korean stock market is developed in order to demonstrate its potential application.
