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Are the Markets Afraid of Kim Jong-Il?

  • Byung-Yeon Kim


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

  • Gerard Roland


    (University of California, Berkeley and CEPR)

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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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. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
  3. Stephan Haggard & Marcus Noland, 2008. "Famine in North Korea Redux?," Economics Study Area Working Papers 97, East-West Center, Economics Study Area.
  4. Massimo Guidolin & Eliana La Ferrara, 2006. "Diamonds are forever, wars are not. Is conflict bad for private firms?," Working Papers 2005-004, Federal Reserve Bank of St. Louis.
  5. repec:reg:rpubli:259 is not listed on IDEAS
  6. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
  7. repec:oup:qjecon:v:126:y:2011:i:3:p:1375-1409 is not listed on IDEAS
  8. Arindrajit Dube & Ethan Kaplan & Suresh Naidu, 2011. "Coups, Corporations, and Classified Information," NBER Working Papers 16952, National Bureau of Economic Research, Inc.
  9. Michael Greenstone, 2007. "Is the "Surge" Working? Some New Facts," NBER Working Papers 13458, National Bureau of Economic Research, Inc.
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