South Korea's financial markets experienced brief volatility on Thursday following President Yoon Suk Yeol's refusal to step down, but quickly regained stability, closing higher for a third straight day, signaling potential for a steady recovery.

The day began with the benchmark Kospi opening 14.12 points higher at 2,456.63. Early gains followed a two-day rally -- the first consecutive upswing on the Kospi since Yoon's short-lived martial law declaration last Tuesday, which sent shockwaves through society and the markets.

However, after Yoon rejected calls for his resignation in a public address that morning, the momentum reversed, causing the index to tumble to an intraday low of 2,448.76. By the afternoon, most of the losses were recovered, and the index closed at 2,482.12, up 1.62 percent from the previous day.

While both retail investors and foreign investors ended the day as net sellers, their trajectories diverged.

Retail investors began as net buyers after four consecutive days of sell-offs, sparking hopes of driving the Kospi higher. However, amid heightened morning volatility, they reversed course, becoming net sellers and eventually offloading a total of 244.5 billion won ($170.8 million).

Foreign investors, constant sellers, accelerated their sell-off following Yoon's address, with net sales peaking at 267.5 billion won around 3:30 p.m. Surprisingly, their sell-off volume dropped sharply in the final moments, ending the day with net sales of just 23.6 billion won.

Institutions helped cushion further losses with net purchasing of around 150 billion won.

The tech-heavy secondary Kosdaq opened higher at 680.97, up 0.74 percent from the previous day. It reached an intraday high of 686.78 before stabilizing around the 680 level.

Yoon's remarks intensified volatility in the currency markets as well. The Korean won opened at 1,429.1 against the US dollar, down 3.1 won from Wednesday's close of 1,426.9. Initially, the local currency showed signs of relief, climbing to 1,428.2 by 9:30 a.m. However, following the president's announcement, the won weakened further, nearing 1,435 won in the morning before stabilizing around 1,433 won.

Despite a brief surge in volatility, analysts believe Yoon's actions on Thursday will have a limited impact.

"While the market briefly fluctuated, upward momentum quickly resumed, with the Kospi even surpassing the morning's high, signaling that the market sees some resolution of the uncertainty," said Jeong Yong-taek, an economist at IBK Securities, adding, "With resignation no longer on the table, impeachment has become the main option, with an increasing likelihood that Yoon's impeachment will be passed at the National Assembly. The process now hinges on the Constitutional Court."

Yoon faces a parliamentary impeachment vote scheduled for Saturday, with growing momentum suggesting it may pass. His refusal to step down, paired with a call from People Power Party Chair Han Dong-hoon for the ruling party to support his ouster, has amplified pressure for impeachment.

Yet, Jeong warned that, while markets have recovered from their worst moments, a sharp rebound is unlikely in the near term.

"Fundamentally, the market remains weighed down by a worsening economic outlook, which has been priced in since before the emergency. With little improvement expected next year, a sharp rebound seems unlikely. Nevertheless, reduced uncertainty compared to last week will help contain volatility at its current levels," he added.