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Seoul Journal of Economics - Vol. 36 , No. 2
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Seoul Journal of Economics - Vol. 36, No. 2, pp. 233-246
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 May 2023
Received 20 Feb 2023 Revised 22 May 2023 Accepted 23 May 2023
DOI: https://doi.org/10.22904/sje.2023.36.2.004

A Local Premium and Fluctuations: An Empirical Study on KorBit and the International Market
Jae-Young Kim ; Joon-Hyuck Lee
Jae-Young Kim, Corresponding Author, Department of Economics, Seoul National University (jykim017@snu.ac.kr)
Joon-Hyuck Lee, Department of Economics, Seoul National University (jhlof97@snu.ac.kr)

Funding Information ▼

JEL Classification: C32; C58; G15

Abstract

Bitcoin, the first cryptocurrency created by Satoshi Nakamoto in 2009, has attracted considerable attention. The price of Bitcoin rose from $500 in the year 2014 to $70,000 in 2021, an astonishing 14,000% increase in the value, showing that it is a highly speculative asset. The Korean virtual currency exchange, KorBit, has emerged as a significant player in the global Bitcoin market, gaining considerable attention with a nontrivial premium known as the “kimchi premium”. We investigate how the Bitcoin’s value fluctuates and co-fluctuates across two markets of KorBit and international Bitcoin market (IntBit) based on a multivariate GARCH. We also explore what factors drive a relatively high yield and fluctuations in KorBit over IntBit. We have found that when the volatilities of Bitcoin’s yields in the two markets are contemporaneously high with a premium in KorBit, the correlation of the yields between the two markets decreases and highly fluctuates. We have also found that a relatively high yield of Bitcoin and its fluctuations in KorBit are mainly caused by depreciation of the Korean won and gains of KOSPI over S&P500.

Keywords: Bitcoin, multivariate GARCH, kimchi premium
Acknowledgments

The authors thank Jae-Won Lee and two anonymous referees for helpful comments on the earlier version of this papar. This work was supported by the Research Grant, no. 0405-20190001, of the Center for National Competitiveness at the Institute of Economic Research Seoul National University.

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