In Box

Oppa Gangnam Bubble

How investor irrationality and last year's biggest hit combined to send an obscure semiconductor company's stock price surging.

Illustration by Mitch Blunt
Illustration by Mitch Blunt

This year’s Nobel Prize in economics went to, among others, Robert Shiller, the pioneering behavioral economist whose research on asset bubbles and market psychology uncovered profound irrationality.

For evidence of this irrationality, look no further than the stock price of a little semiconductor company called DI Corp., which rose to prominence in 2012 on the shoulders of PSY’s mega-hit, "Gangnam Style." It turns out that the South Korean pop star happens to be the son of the company’s chairman and CEO, Park Won-ho. That this has zero bearing on the quality of DI Corp.’s management or its semiconductors seemed to matter little to investors. The company’s stock price surged, increasing almost 800 percent in the three months after the video was posted online, based on almost no material information about the company whatsoever.

At the time, the surge was presumed to be driven by South Korean fans, who have a penchant for what are called "theme stocks" — equities whose share prices shoot up based on some exogenous event that has little to do with business fundamentals. But a new study, titled "Investor PSY-chology Surrounding ‘Gangnam Style,’" looks at the role of foreign investors in the PSY bubble.

The paper, by Andy Kim of the Nanyang Business School in Singapore and Ho Sung Jung of the Bank of Korea, measured the popularity of PSY’s hit by tracking uploads of "Gangnam Style" parody videos and flash-mob re-creations and found that foreign investors living outside Korea suddenly took an interest in DI Corp. shares when the song went viral in their countries. Meanwhile, foreigners who were residents of South Korea behaved in what the authors call a "less naive fashion" when it came to Papa PSY’s company.

But then, who were the naive ones, really? It’s been a year and a half since PSY’s video came out; as of press time, DI Corp.’s shares were still up more than 600 percent.

Alicia P.Q. Wittmeyer is the Europe editor at Foreign Policy. Her work has appeared in the Los Angeles Times, the Washington Post, and Forbes, among other places. She holds a bachelor’s degree from the University of California, Berkeley, and master’s degrees from Peking University and the London School of Economics. The P.Q. stands for Ping-Quon.

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