(A) study on heterogeneous investment activities in cross-country R&D and stock markets

Abstract

This dissertation empirically studies the heterogeneity of cross-country R&D and stock markets. The former reflects the effect of firms’ R&D investments across industries on economic growth, and the latter represents the interactions between market participants and their relationships with returns. This dissertation focuses on how the heterogeneity leads to economic outcomes. The first chapter empirically investigates the relationship between the cross-industry distribution of R&D investments and economic growth across 14 countries for the period from 1996 to 2013. Although countries can invest disproportionately in a handful of industries hoping to use their limited resources efficiently and boost economic growth, complementarity between industries calls for balanced investments. Using the Herfindahl Index as the measure of R&D concentration, this study finds an inverted U-shaped relationship between the concentration of R&D investment and economic growth. Some level of concentration may be good for growth

however, beyond a certain point, concentration has a negative effect on growth. Moreover, heavy investment in high-technology manufacturing industry alleviates this negative effect of concentration. The opposite holds for much investment in the service industry. Lastly, this study finds that the importance of diversification increases when countries advance, while developing countries can benefit from strategic concentration. The second chapter investigates the causal and contemporaneous relationships between market participants (individuals, institutions, and foreigners) and returns in Korean stock markets (KOSPI and KOSDAQ). First, using effective transfer entropy, the findings indicate that the causal dependences of individuals in the KOSDAQ are higher than in the KOSPI. Second, using extreme value theory, the counterparty dependence between individuals and another group with magnified extreme returns is identified as increasing patterns and is higher in the KOSDAQ than in the KOSPI. As a result, in causal and contemporaneous relationships, those relationships of individuals are stronger in the KOSDAQ than in the KOSPI.