Identifying Uncertainty Shocks Due to Geopolitical Swings in Korea

Lee, Seohyun; So, Inhwan; Ha, Jongrim

doi:10.2139/ssrn.3243628

Cited by 2 publications

(1 citation statement)

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“…However, there are relatively few studies on the effects of inter-Korean relations on the financial markets. Some studies analyzed the effect of inter-Korean relations news on the stock index, focusing on the correlation between inter-Korean relations and stock market and concluded that foreign investors generally did not respond sensitively to inter-Korean news [92][93][94].…”

Section: Literature Reviewmentioning

confidence: 99%

Sustainable Local Currency Debt: An Analysis of Foreigners’ Korea Treasury Bonds Investments Using a LA-VARX Model

Jang

Atukeren

2019

Sustainability

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Foreign investors’ interest in Korean local currency bonds, and especially in Korea Treasury Bonds (KTBs) has increased significantly since the mid-2000s. This paper examines the determinants of foreign investors’ KTB investments by means of a lag-augmented vector autoregressive model with exogenous variables (LA-VARX). The model specification includes variables capturing the domestic, international, and risk factors. The risk factors are especially important in the context of South Korea since geopolitical tensions and economic policy uncertainty might adversely affect all investment decisions by foreigners. We find that expected return rates, country default risks, and global economic conditions have a significant impact on foreign investors’ KTB investment, but geopolitical risks have only a short-term negative impact. Our findings not for only provide a better understanding of the determinants of financial investments in South Korean financial markets, but they have broader implications in terms of the economic and social aspects of sustainability in South Korea. This is because KTBs provide a source of funding for the South Korean government for social projects and that KTBs are also held largely by long-term investors such as pension funds and insurers which require sTable Snd sustainable investments.

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Section: Literature Reviewmentioning

confidence: 99%