Option Marketsand the Value of CSR: Evidence from Option-Implied Volatility

Hyoung-Goo Kang,Sol Kim,Geul Lee 한국윤리경영학회 2017 한국윤리경영학회 학술대회 발표논문집 Vol.2017 No.3

We introduce an innovative method to quantify the risk-management benefit ofCorporate Social Responsibility(CSR). Option-implied volatility captures the expectations of financial marketsof future risk and uncertainty ofa firm. Therefore, if CSR produces risk management benefits, CSR should reduce implied volatility. We find that CSR and implied volatility show a negative concurrent correlation after controlling for other variables. In addition, the greater the CSR, the lower the future implied volatility. These findings are consistent with the view that CSR creates risk management benefits to a firm, and financial markets stronglyappreciate the benefit. Hence, financial engineers in charge of derivative pricing should take into account strategic management variables.

Complementarity in dietary supplements and foods: are supplement users vegetable eaters?

Kang, Hyoung-Goo,Joo, Hailey Hayeon,Choi, Kyong Duk,Lee, Dongmin,Moon, Junghoon TaylorFrancis 2017 Food & nutrition research Vol.61 No.1

<P><B>ABSTRACT</B></P><P><B>Background</B>: The consumption of fruits, vegetables, and dietary supplements correlate. Most previous studies have aimed to identify the determinants of supplement uses or the distinct features of supplement users; this literature lacks a discussion on dietary supplement consumption as a predictor of fruit and vegetable consumption.</P><P><B>Objective</B>: This study examines how dietary supplement consumption correlates with fruit and vegetable consumption by combining scanner data and surveys of Korean household grocery shopping.</P><P><B>Methods</B>: Propensity score matching (PSM) is used to identify the relationship between dietary supplement consumption and fruit and vegetable consumption in a household. A logit regression using supplement consumption as the dependent variable is used. Then, the supplement takers (the treatment group) are matched with non-takers (the control group) based on the propensity scores estimated in the logit regression. The fruit and vegetable consumption levels of the groups are then compared.</P><P><B>Results</B>: We found that dietary supplement use is associated with higher fruit and vegetable consumption. This supports the health consciousness hypothesis based on attention bias, availability heuristics, the focusing effect, and the consumption episode effect. It rejects the health substitute hypothesis based on economic substitutes and mental accounting.</P><P><B>Conclusions</B>: Future research on the health benefits of dietary supplements should address the complementary consumption of fruits/vegetables and their health benefits to avoid misstating the health effects of supplements.</P>

Business Group, Nonmarket-Driven Diversification and Nonmarket Corporate Strategy

Hyoung Goo Kang,Changmin Lee 한국윤리경영학회 2015 한국윤리경영학회 학술대회 발표논문집 Vol.2015 No.1

The private incentives of stakeholders can drive corporate diversifications. Controlling shareholders, management and government are important stakeholders and affect a firm’s diversification strategies. We regard such diversification pressed by the nonmarket incentives of stakeholders as nonmarket-driven diversification. This contrasts with standard market-driven diversification. Nonmarket-driven diversification is a subset of nonmarket corporate strategy and has been under researched in the literature. Nonmarket corporate strategy is a nonmarket extension of corporate strategy just as nonmarket strategy is mainly a nonmarket extension of business strategy. We hypothesize that firms affiliated with business groups are more likely to undertake nonmarket-driven diversification. This solves and provides a fresh perspective to the unresolved puzzle on the efficiency of corporate diversification and business groups.

An Option Embedded Novel Military Service System based on Cognitive Bias Theories

( Hyoung-goo Kang ),( Byungsuk Han ) 한국파생상품학회(구 한국선물학회) 2020 선물연구 Vol.28 No.3

We hypothesize that cognitive biases such as nostalgia, rosy retrospection, overconfidence, fading-affect bias, and prospect theory affect how to serve in the military. The behaviors of those expecting military service and those completed the service differ significantlyin evaluating the self and social value of the human capital during the military service. This difference corresponds to the predictions of the cognitive-bias literature. We test propositions in option framework. Our experimental design proposes a novel military system, a hybrid of conscription and voluntary systems. Our results are consistent with the hypothesis, option theory, and behavioral economics literature.

The Boundaries of MM2: An Exploration of Equity Value Indeterminacy

Hyoung-Goo Kang 한국재무학회 2023 한국재무학회 학술대회 Vol.2023 No.11

The Modigliani-Miller Proposition II (MM2) is a cornerstone in the field of corporate finance, positing that in a frictionless environment with perfect capital markets, the cost of equity capital is linearly related to a firm’s leverage. This paper critically re-evaluates this proposition, particularly examining the determination of the cost and value of equity. We find that under specific circumstances, especially when the value of a tax shield is influenced by endogenous variables, the cost and value of equity may be ambiguous. This calls into question the universal applicability of MM2. Our research offers new perspectives on the theoretical underpinnings of financial management and underscores the significance of situational factors in the practical application of these theories.

ESG-as-Insurance: An Implicit Social Contract for Sustainable Competitive Advantage and Social Responsibility

Hyoung-Goo Kang 한국재무학회 2023 한국재무학회 학술대회 Vol.2023 No.11

This paper investigates the concept of Environmental, Social, and Governance (ESG) practices as a form of social contract for insurance. The paper’s core hypothesis suggests that ESG, influenced by a social contract, requires a unique set of variables for valuation compared to traditional insurance. We also explore how institutional variables impact this valuation, with stronger traditions intensifying the ESG-as-insurance effect. The research delves into how capital market conditions make ESG-as-Insurance more appealing and considers the correlation between a firm’s use of financial derivatives and its ESG practices. Additionally, we argue that elevated social capital amplifies ESG effectiveness. The study concludes by highlighting the benefits of an integrated approach, combining various strategies to enhance firm engagement with ESG standards.

Examining the Generative Artificial Intelligence Landscape: Current Status and Policy Strategies

Hyoung-Goo Kang,Aram Moon,Sam Seongmin Jeon 한국경영학회 2023 한국경영학회 통합학술발표논문집 Vol.2023 No.8

Purpose: This article proposes a framework to elucidate the structural dynamics of the generative AI ecosystem. It also outlines the practical application of this proposed framework through illustrative policies, with a specific emphasis on the development of the Korean generative AI ecosystem and its implications of platform strategies at AI platform-squared. Design/methodology/approach: The core of this paper centers around the interrelations within AI platforms, with a distinct focus on hierarchical structures and power dynamics. We propose a comprehensive classification scheme within generative AI ecosystems, including app builders, technology partners, app stores, foundational AI models operating as operating systems, cloud services, and chip manufacturers. Predictions: The market competitiveness for both app builders and technology partners will be highly contingent on their ability to effectively navigate the customer decision journey (CDJ) while offering localized services that fill the gaps left by foundational models. The strategically important platform of platforms in the generative AI ecosystem (i.e., AI platform-squared) is constituted by app stores, foundational AIs as operating systems, and cloud services. A few companies, primarily in the U.S. and China, are projected to dominate this AI platformsquared, and consequently, they are likely to become the primary targets of nonmarket strategies by diverse governments and communities. Korea still has chances in AI platform-squared, but the window of opportunities is narrowing. Recommendations: A cautious approach is necessary when considering potential regulations for domestic large AI models and platforms. Hastily importing foreign regulatory frameworks and non-market strategies, such as those from Europe, could overlook the essential hierarchical structure that our framework underscores. Our study suggests a clear strategic pathway for Korea to emerge as a generative AI powerhouse. As one of the few countries boasting significant companies within the foundational AI models (which need to collaborate) and chip manufacturing sectors, it is vital for Korea to leverage its unique position and strategically penetrate the platform-squared segment - app stores, operating systems, and cloud services. Given the potential network effects and winner-takes-all dynamics in AI platform-squared, this endeavor is of immediate urgency. To facilitate this transition, it is recommended that the government implement promotional policies that strategically nurture these AI platform-squared, rather than restrict them through regulations and stakeholder pressures.

Dynamic Asset Allocation under Mispricing, Predictability and Portable Alpha

Kang, Hyoung Goo Institute for International Trade and Cooperation, 2010 Asian International Studies Review Vol.11 No.1

The existing literature about portfolio management has investigated how to update a portfolio allocation, conditional on the information that possibly predicts asset returns and volatilities. We add several innovations to fill the lacuna of prior research in the contexts of global asset allocation. First, we suggest a simple method of how to rebalance portfolios automatically and dynamically in order to exploit potential market inefficiencies. The existing literature has not developed such a strategy. Out-of-sample tests demonstrate that our strategy dominates both static allocation and dynamic strategies that do not account for possible mispricing. Thus, our strategy can contribute not only to academia, but also to practical portfolio managers who endeavor to beat markets. Second, we elaborate portable alpha strategies using the new dynamic strategy. Once we add an alpha portfolio to existing portfolios, then they perform better in terms of mean and risk. Thus, it makes our alpha portfolio portable, i.e., we can apply the alpha portfolio to any fund and can enhance its performance. Third, our dynamic strategy implies a convenient method to estimate a conditional mean and covariance matrix as functions of predictive information while ensuring positive definiteness of the covariance matrix without consuming much computational power. Such estimation strategy can be useful to practical risk managers and traders who need to control the risks of large target portfolios on a real time basis.

Option Markets and the Value of CSR

Hyoung-Goo Kang(강형구),Sol Kim(김솔),Geul Lee(이글) 한국경영학회 2017 한국경영학회 통합학술발표논문집 Vol.2017 No.08

We introduce an innovative method to quantify the risk-management benefit of Corporate Social Responsibility (CSR). Option-implied volatility captures the expectations of financial markets of future risk and uncertainty of a firm. Therefore, if CSR produces risk management benefits, CSR should reduce implied volatility. We find that CSR and implied volatility show a negative concurrent correlation after controlling for other variables. In addition, the greater the CSR, the lower the future implied volatility. These findings are consistent with the view that CSR creates risk management benefits to a firm, and financial markets strongly appreciate the benefit. Hence, financial engineers in charge of derivative pricing should take into account strategic management variables.

Time-Varying Macroeconomic Exposures in the Indian Stock Market

Kang, Hyoung-Goo(강형구) 한국외국어대학교 인도연구소 2009 남아시아연구 Vol.15 No.1

이 연구는 인도의 주식시장이 어떠한 요인들에 의하여 주로 영향을 받는지를 측정하는 모형을 제안하고, 결과를 분석하고자 한다. 특히 인도의 거시경제학적 영향을 효과적으로 분석하기 위하여 기존 방식을 보완한 방법을 제안하였다. 이러한 새로운 방법을 통하여, 이 연구는 거시, 회계 그리고 기술적 요인을 동태적으로 일시에 고려한 대규모 인도주식위험 모형을 개발하였다. 거시경제요인들은 인도주식시장의 움직임을 잔 설명하지만 회계적 요인이나 기술적 요인들에 비해 주식가격수준에는 작은 영향을 미친다. 이자율기간프리미엄, 가치지수들(자산비율, 수익률, 배당률), 시장유통성지수, 회사유통성지수 성장률 등과 관련된 요소들은 인도의 주식가격수준에는 큰 영향을 주지만, 주식가격들의 변동에는 작은 영향을 미친다. 기타 거시 경제변수들, 회계변수들 그리고 기술적 변수들은 자산가격 결정에 낮게 반영된다(예: 규모, 변동성, 모멘템). We analyze the Indian Stock Market by introducing a new way of incorporating macroeconomic risks into multifactor models. We demonstrate the validity of our method by developing a large-scale, dynamic and multi factor model. Our model generates several notable findings about the Indian Stock Market. Macro factors generate larger co-movements in equity markets, but are lower priced than accounting and mechanical factors. High-priced factors are those related to term-premium changes, valuation (book-to-market ratio, PE ratio and dividend yield), market liquidity, balance-sheet liquidity (internal capital and leverage) and growth (ROE and earnings growth). However, other macro factors and some fundamental and mechanical factors, such as size, volatility and momentum, are lower priced.