Investor PSY-chology Surrounding 'Gangnam Style'

Hosung Jung Bank Of Korea, Y. Han (Andy) Kim Nanyang Technological University (Ntu)

Description

The global success of “Gangnam Style,” the 18th K-pop single by the South Korean rapper PSY in 2012, was an exogenous shock to individual investor enthusiasm about DI Corp., because the company’s chairman and CEO is PSY’s father. The stock price of the semiconductor equipment company jumped by almost 800% in three months without material information. The count of flash mob videos and parody videos uploaded on YouTube from each country and region is our proxy for the enthusiasm of individual investors. Using Korean microstructure data that identifies non-resident foreign individual (NRFInd, hereafter) investors and resident foreign individual (RFInd, hereafter) investors by nationality, we find that NRFInd (RFInd) investors in specific countries become net buyers (sellers) of DI Corp. when a flash mob or parody music video is uploaded in their country. Domestic individual investors were also significantly affected by the foreign flash mobs, which was the driving force of the bubble. One flash mob in a foreign country was associated with 0.83% of abnormal return on the next day. Overall, the case shows that non-informative attention can sometimes drive the price away from fundamentals.

Sujets

• PSY
• Gangnam
• Flash mob
• Efficient-market hypothesis
• Corée
• Youtube com
• Investor

Informations

• Publié par: Communicare
• Publié le: 10 janvier 2014
• Nombre de lectures: 101
• Langue: English

Extrait

Investor PSY-chology surrounding
“Gangnam Style”
1 2Y. Han (Andy) KIM Hosung JUNG
Nanyang Business School, Economic Research Institute,
Singapore The Bank of Korea

December 25, 2013
Abstract
thThe global success of “Gangnam Style,” the 18 K-pop single by the South Korean rapper
PSY in 2012, was an exogenous shock to individual investor enthusiasm about DI Corp.,
because the company’s chairman and CEO is PSY’s father. The stock price of the
semiconductor equipment company jumped by almost 800% in three months without material
information. The count of flash mob videos and parody videos uploaded on YouTube from
each country and region is our proxy for the enthusiasm of individual investors. Using
Korean microstructure data that identifies non-resident foreign individual (NRFInd, hereafter)
investors and resident foreign individual (RFInd, hereafter) investors by nationality, we find
that NRFInd (RFInd) investors in specific countries become net buyers (sellers) of DI Corp.
when a flash mob or parody music video is uploaded in their country. Domestic individual
investors were also significantly affected by the foreign flash mobs, which was the driving
force of the bubble. One flash mob in a foreign country was associated with 0.83% of
abnormal return on the next day. Overall, the case shows that non-informative attention can
sometimes drive the price away from fundamentals. 

Key words: Gangnam Style, flash mob, Youtube, parody, bubble, investor awareness,
individual investors, foreign investors, short sale, home bias, media, market efficiency
JEL classification: G02; G14; G12; G18
                                                            
1 Corresponding author. Assistant professor of Finance, Nanyang Business School, NTU, Singapore,
[e-mail], 65-6790-4639, 50 Nanyang Avenue, S3-B1A-16, Singapore, 639798.
2 Economist, Financial & Monetary Economics Team, Economic Research Institute, the Bank of Korea.
[e-mail], 82-2-759-5308, 39 Namdaemun-Ro, Jung-Gu, Seoul, 100-794, South Korea. We thank the
seminar participants at Economic Research Institute of Bank of Korea, Nanyang Business School, and Yonsei
University. We thank Rajesh Aggarwal, Chang Mo Ahn, Kee Hong Bae, Ekkehart Boehmer, Steven Cahan,
Ha-Joon Chang, Zhanhui Chen, Jaewon Choi, Jiwoong Chung, Sunggon Chung, Steve Dimmock, Niall
Ferguson, Stephanie Dehning Grimm, Umit Gurun, David Hirshleifer, Sheryl Holt, Jinki Hong, Byoung-Hyoun
Hwang, Chuan Yang Hwang, Byoung-Uk Kang, Jun-Koo Kang, Matti Keloharju, Sookon Kim, Daseul Lee,
Kuan-Hui Lee, Jaehoon Lee, Hyunseung Na, Lilian Ng, Terry Odean, Chris Parsons, Adam Reed, Andrei
Shleifer, Johan Sulaeman, Chang Hwan Sung, Paul Tetlock, Robert Webb, Scott Weisbenner, and Chishen Wei
for their insightful comments. We also thank Gyung-Hun Chung, Jaekyun Kim, and Michelle Lim for collecting
data. All errors are our own. 1. Introduction and hypotheses development
The central tenet of the efficient market hypothesis (Fama, 1970) is that only
information should move a stock price. However, researchers have found that non-
informative attention can sometimes drive the price away from fundamentals through the
trading of enthusiastic individual investors under limits of arbitrage at least in the short-run
(Black, 1986; Barber and Odean, 2008; Engelberg, Sasseville, and Williams, 2012;
Huberman and Regev, 2001; Kim and Meschke, 2012; Shleifer and Vishny, 1997; Tetlock,
2007, 2011). The recent case of DI Corp. (KRX:003160) and “Gangnam Style” provides
intriguing evidence about the causal relationship between non-informative attention from
global social media and the stock price through the trading of international and domestic
individual investors.
DI Corp. is a manufacturer of testing machines for semiconductors, founded in 1955
by the late grandfather of the world famous rapper, PSY. The company has been listed on the
Korean Stock Exchange (KSE) since 1996. Its chairman and co-CEO, Mr. Won Ho Park, is
PSY’s father. Over the year of 2012, the company had no material news about the
fundamentals. However, as PSY’s “Gangnam Style” video achieved a world record of
threceiving more than 1.8 billion hits on YouTube from around the world since July 15 , 2012,
and as his family relationship with the chairman of DI Corp. became public knowledge
through news media in many languages in the world (including the Economist (2012)), the
stock price of DI Corp. jumped up by about 800% (Figure 1). Consequently, the market cap
increased from US$38 million to US$334 million. Although the price reversed after October
th15 , at the end of 2012, it still maintained the level of 130% above what it had been before
the release of “Gangnam Style.” In this paper, while we find that the pricing pattern was
primarily driven by domestic individual investors, we report that it was accompanied by
1 
 foreign individual investors placing orders inside and outside Korea as flash mobs and
parodies of “Gangnam Style” were uploaded from many different countries.
[Figure 1 about here]
The most difficult empirical challenge in the literature about media attention and
stock price has always been how to separate the attention from information. The reason is
because attention is typically given to a firm due to the presence of information about the
fundamentals in the first place (Gurun, 2013). The case of “Gangnam Style” and DI Corp
enables us to clearly identify the impact of non-informative attention upon stock price. First,
the success of “Gangnam Style” had nothing to do with the economic fundamental of the
semiconductor company, but it gave tremendous amount of attention to DI Corp from around
3the world. Second, we use the number of flash mob videos and parody videos of “Gangnam
Style” uploaded from the respective geographic regions or foreign countries as the measure
4of attention to the stock, DI Corp. Our idea is that when people are excited about “Gangnam
Style,” they are more likely to upload flash mob videos or parodies, and individual investor in
the same region would be more likely to be excited to buy the stock of DI Corp. Moreover,
it is extremely difficult to claim a story of reverse causality: “A ‘Gangnam Style’ flash mob
by several hundred people took place in country XYZ to celebrate the price increase of DI
Corp., a small cap in Korea.” Thus, we test the following hypothesis:
Individual investors are the net buyers of the stock of DI Corp. when the level of
enthusiasm about “Gangnam Style” is high in nearby location (their own country).
                                                            
3 Some readers may argue that the global success of PSY may have caused the investors to revise their
perception of the CEO’s ability or revise their belief that the potential candidate of successor in business could
have been a positive fundamental news. However, such belief revision should give a permanent price increase,
which is not justified by subsequent reversal. 
4 A unique feature of the “Gangnam Style” music video is that PSY waived the copyright of the content of the
video, so that people who like it could create as many parody music videos as possible without worrying about
the copyright issue (Chang, 2012). In case you are interested, please check Mahdawi, A., “What’s so funny
about Gangnam Style?” The Guardian, September 24, 2012.
http://www.guardian.co.uk/commentisfree/2012/sep/24/gangnam-style-south-korean-pop
2 
 Some of the unique features of Korean microstructure data include that it identifies
the geographical branch location where the order originates from and it identifies whether the
trades is from individual investors or from institutional investors. For the trading of foreign
investors, it gives the identification of 250 unique country codes and the information about
5whether the investor is a resident or non-resident of Korea (FORNINVST_TP_CD). For
offshore Koreans with permanent residency in foreign countries, the database provides a
separate country code (CNTR_CD=997), which enables us to make sure that the trader is not
really a domestic investor in disguise.
A recent development in pop culture with the advancement of social media, such as
Facebook and Twitter, is to create and upload flash mob videos in celebrating the songs
people like. Indeed, people’s enthusiasm and spontaneity are the keys to the creation of these
flash mobs. Because people have to demonstrate and record their dance in a public place, <