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The impact of North Korean nuclear threat on stock market linkages in Northeast Asia: The case of South Korea, China, and Japan

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  • Lee, Geesun

Abstract

This study examines the impact of geopolitical risk from North Korea on the stock market linkages of Northeast Asia, namely South Korea, China, and Japan. Using daily returns and volatilities from 2012 to 2023 under the Kim Jong-Un regime, we employ TVP-VAR model to investigate the stock market linkages of Northeast Asia. We find that Northeast Asian stock markets are more affected by inter-Korean geopolitics than by global geopolitical concerns. Our findings emphasize the importance of considering country- or region-specific geopolitical concerns for risk management strategies for international investors. Additionally, this study provides valuable insights for policymakers, especially in light of the recent escalation in geopolitical tensions resulting from North Korea's nuclear threats. Implementing proactive measures to address and mitigate the impact of regional geopolitical risks on financial markets can promote stability and resilience in the economy.

Suggested Citation

  • Lee, Geesun, 2024. "The impact of North Korean nuclear threat on stock market linkages in Northeast Asia: The case of South Korea, China, and Japan," Finance Research Letters, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finlet:v:66:y:2024:i:c:s1544612324007578
    DOI: 10.1016/j.frl.2024.105727
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    More about this item

    Keywords

    Geopolitical risk; North Korea; Northeast Asia; Nuclear threat; Stock market linkage; War;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative

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