Seoul: Short-selling transactions rose to the highest in over two years when the South Korean stock market crashed earlier this week on artificial intelligence (AI) valuation concerns, industry data showed Thursday. On Wednesday, the country's benchmark Korea Composite Stock Price Index (KOSPI) closed more than 2 percent lower, after once dipping by more than 6 percent during intraday trading. This triggered a sell-side circuit breaker by the Korea Exchange (KRX) for five minutes.

According to Yonhap News Agency, a total of 1.97 trillion won (US$1.4 billion) worth of stocks were shorted on the day, based on data from the KRX and Yonhap Infomax, the financial arm of Yonhap News Agency. This figure marks the highest since July 26, 2023, when it reached 2.4 trillion won as investors shorted battery shares in the smaller KOSDAQ market, the KRX explained.

By investors, foreigners accounted for 67 percent of the total amount, while institutional investors accounted for 32.1 percent. Short selling is an investment strategy of selling borrowed securities with the intent of repaying them with stocks purchased later at a lower price. Short sellers gain profit from a drop in stock prices.

The investment technique helps cool off an overheated market, but critics have argued it could be predatory, as it exacerbates market declines. South Korea temporarily banned short selling in November 2023 amid concerns of naked, or illegal, short selling but re-allowed it in late March this year.