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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.

Suggested Citation

  • Byung-Yeon Kim & Gerard Roland, 2011. "Are the Markets Afraid of Kim Jong-Il?," KIER Working Papers 789, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:789
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