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Are the Markets Afraid of Kim Jong-Il?

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  • Byung-Yeon Kim

    ()
    (Department of Economics, Seoul National University, Institute of Economic Research, Kyoto University)

  • Gerard Roland

    ()
    (University of California, Berkeley and CEPR)

Abstract

We perform event analysis on particular episodes of the tension in the Korean peninsula between 2000 and 2008, and investigate their effect on South Korean financial markets (stock markets, bond yield spreads and the exchange rate) given that South Korea would be the first affected by a military aggression from North Korea. Surprisingly, in nearly all cases, these events, which have often been dramatized in the world media, have no significant impact on either of these variables or only a very small one. We also find no significant impact of events on listed firms that would a priori be likely to suffer from increased tension between the two Koreas. Since financial markets contain often better predictions than expert opinions or surveys, these results strongly suggest that the North Korean threat is non credible.

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 789.

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Length: 32pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:kyo:wpaper:789

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  1. Chaney, Eric, 2008. "Assessing pacification policy in Iraq: Evidence from Iraqi financial markets," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 1-16, March.
  2. Wolfers, Justin & Zitzewitz, Eric, 2004. "Prediction Markets," Research Papers 1854, Stanford University, Graduate School of Business.
  3. Michael Greenstone, 2007. "Is the "Surge" Working? Some New Facts," NBER Working Papers 13458, National Bureau of Economic Research, Inc.
  4. repec:reg:rpubli:259 is not listed on IDEAS
  5. Stephan Haggard & Marcus Noland, 2008. "Famine in North Korea Redux?," Economics Study Area Working Papers 97, East-West Center, Economics Study Area.
  6. Guidolin, Massimo & La Ferrara, Eliana, 2004. "Diamonds are Forever, Wars are Not: Is Conflict Bad for Private Firms?," CEPR Discussion Papers 4668, C.E.P.R. Discussion Papers.
  7. Arindrajit Dube & Ethan Kaplan & Suresh Naidu, 2011. "Coups, Corporations, and Classified Information," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1375-1409.
  8. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
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