Impact of International Trade on the Share Prices of the Industrial Bank of Korea Using Stochastic Prediction Modeling

Purpose – The share price of any financial institution fluctuates due to various hidden and visible factors. Predicting share price behavior in the economy and financial marketing theory is crucial but complex. The Industrial Bank of Korea’s (IBK) share prices are also affected by hidden factors, including Korean international trade flow. The study aims to forecast hidden impacts on IBK share prices resulting from the international trade flow in Korea. Design/Methodology/Approach – Two Hidden Markov Model (HMM) approaches are employed, one based on exports, and the other on imports, to identify trends and fluctuations in the hidden states influencing visible states. Findings – The findings reveal a significant positive correlation between IBK share prices and both exports and imports. Notably, increasing exports indicate a 50% probability of IBK share prices rising, while falling imports indicate a 56% chance of IBK share prices increasing. These results demonstrate how changes in exports and imports impact IBK’s share price in the Korean stock market. Research Implications – The research implications are valuable for short- and long-term investors in IBK shares and the Korean stock exchange. This research can help decision-makers identify the relationships between and within the visible/observed states that influence the stock price of IBK.