‘KOSPI 3300’ stock market overheating?… Financial Supervisory Service “different results when the latest statistics are included”

On the 11th, the KOSPI index is closing at 3,148.45, down 3.73 points from the previous day, on the electronic display board of the KB Kookmin Bank’s Yeouido branch in Yeongdeungpo-gu, Seoul. The KOSPI index, which soared to the 3260 line at the beginning of the market, ended slightly lower due to net selling by institutions and foreigners despite the largest net purchase ever exceeding 4 trillion won by individuals. January 11, 2021/News 1 © News1 Reporter Park Se-yeon

The Financial Supervisory Service explained that a report was made to diagnose stock market overheating when the KOSPI index reached 3300 points (p). Applying the latest statistics could produce different results.

The Financial Supervisory Service announced in a press release on the evening of the 11th that it had conducted an analysis using a model for estimating the probability of occurrence of a financial crisis published by three people, including Professor Greenwood of Harvard University’s Department of Economics, for supervisory purposes.

Three others, including Professor Greenwood, built a model in June of last year that estimates the probability of a financial crisis occurring within the next three years, using credit and asset price growth rates, based on data from 1950 to 2012 from 42 countries.

The FSS applied domestic statistics as of the end of 2019 and June of last year to this model, and it was concluded that if the KOSPI reached 3300p, it was diagnosed as overheating the stock market.

On this day, the KOSPI closed at 3148.45, down 3.73 points (p) (0.12%) from the closing price on the previous trading day (8th). It had soared to 3266.23 at one time during the chapter.

However, an official from the FSS said, “The model used in this analysis is for academic research, not for supervisory purposes, and there are restrictions on application to individual countries, such as using only two variables to cover and compare the economic environment of 40 countries around the world.” “It is difficult to evaluate the adequacy of stock prices based on the model’s estimation results,” he explained.

He added, “If the latest statistics are included, even if the same model is used, different results may be derived from the existing analysis.”

In addition, “The evaluation of whether the recent stock price level is overheated is a matter to take into account the improvement of the constitution of the domestic industry and the stock market, such as the growth of new growth industries and the expansion of the stock market, and it is difficult to evaluate simply with the stock index.” He added.

[email protected]