Does Nuclear Uncertainty Threaten Financial Markets?: The Attention Paid to North Korean Nuclear Threats and its Impact on South Korea's Financial Markets

37 Pages Posted: 28 Dec 2017

See all articles by In Huh

In Huh

Chonnam National University

Ju Hyun Pyun

Korea University Business School (KUBS)

Date Written: December 21, 2017

Abstract

We explore how investor attention paid to dangerous nuclear tests in an adjacent country influences financial market outcomes. To measure the attention paid to North Korean nuclear threats, we introduce a weekly Google search volume index for keywords on North Korean nuclear events. Using a time-varying structural vector auto-regression model with block exogeneity restrictions, we find that investor attention paid to nuclear threats has heterogeneous effects on South Korea’s stock price across industries and over time: attention on only the first nuclear test was negatively related to stock price index, which vanished thereafter. Moreover, the investor attention paid to the nuclear risk reduced stock prices, especially in the banking industry, during the entire sample period.

Keywords: Investor attention, North Korean Nuclear Risk, Google SVI, Structural Vector Auto-Regression Model, Block Exogeneity, Political Risk

JEL Classification: F3, G1

Suggested Citation

Huh, In and Pyun, Ju Hyun, Does Nuclear Uncertainty Threaten Financial Markets?: The Attention Paid to North Korean Nuclear Threats and its Impact on South Korea's Financial Markets (December 21, 2017). Available at SSRN: https://ssrn.com/abstract=3092027 or http://dx.doi.org/10.2139/ssrn.3092027

In Huh

Chonnam National University ( email )

300 Yongbong-dong
Gwangju, Jeonnam
Korea, Republic of (South Korea)

Ju Hyun Pyun (Contact Author)

Korea University Business School (KUBS) ( email )

145 Anam-Ro, Seongbuk-Gu
Seoul, 02841
Korea, Republic of (South Korea)
82-2-3290-2610 (Phone)

HOME PAGE: http://sites.google.com/site/juhyunpyun/research

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