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Rogue State Behavior and Markets: the Financial Fallout of North Korean Nuclear Tests

Author

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  • Kollias Christos
  • Papadamou Stephanos
  • Psarianos Iacovos

    (Department of Economics, University of Thessaly, Korai 43 Str. 38333 Volos, Greece)

Abstract

Financial markets react to major political events. The three nuclear tests conducted by North Korea in 2006, 2009 and 2013 are a sober confirmation of its on-going nuclear weapons program with the concomitant potential security threat this poses for the stability of the greater region. This article examines how nine regional stock exchanges reacted to the three nuclear tests given their important security repercussions. The results, although not uniformed across all countries and markets, revealed a greater adverse effect in the case of the second of the three tests. Given that the first test was announced in advance and the third was conducted in the midst of an on-going military crisis, this finding suggests that following the initial shock an unanticipated event can cause, markets can evaluate and absorb in a more efficient manner the news.

Suggested Citation

  • Kollias Christos & Papadamou Stephanos & Psarianos Iacovos, 2014. "Rogue State Behavior and Markets: the Financial Fallout of North Korean Nuclear Tests," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(2), pages 1-26, April.
    • Handle: RePEc:bpj:pepspp:v:20:y:2014:i:2:p:26:n:2
    DOI: 10.1515/peps-2013-0050
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    2. In Huh & Ju Hyun Pyun, 2018. "Does Nuclear Uncertainty Threaten Financial Markets? The Attention Paid to North Korean Nuclear Threats and Its Impact on South Korea's Financial Markets," Asian Economic Journal, East Asian Economic Association, vol. 32(1), pages 55-82, March.
    3. Al-Ississ Mohamad, 2015. "The Cross-Border Impact of Political Violence," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 21(2), pages 239-272, April.

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    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • G1 - Financial Economics - - General Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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