TY - JOUR
T1 - Rare disaster risk and exchange rates
T2 - An empirical investigation of South Korean exchange rates under tension between the two Koreas
AU - Park, Cheolbeom
AU - Park, Suyeon
PY - 2020/10
Y1 - 2020/10
N2 - We investigate the rare disaster hypothesis. Assuming that news articles reporting North Korea's actions that raise tensions on the Korean peninsula affect the probability and expected damage of a disastrous war in the region, we find by applying nonparametric regression that the South Korean exchange rate depreciates as the number of such news articles increases. We also find through an event study that the South Korean exchange rate depreciates immediately after nuclear tests, although its duration is short. The response of the exchange rate to news escalating tension levels varies over time, which is similar to the habituation learning process.
AB - We investigate the rare disaster hypothesis. Assuming that news articles reporting North Korea's actions that raise tensions on the Korean peninsula affect the probability and expected damage of a disastrous war in the region, we find by applying nonparametric regression that the South Korean exchange rate depreciates as the number of such news articles increases. We also find through an event study that the South Korean exchange rate depreciates immediately after nuclear tests, although its duration is short. The response of the exchange rate to news escalating tension levels varies over time, which is similar to the habituation learning process.
KW - Event study
KW - Exchange rate
KW - Nonparametric regression
KW - Rare disasters
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U2 - 10.1016/j.frl.2019.101314
DO - 10.1016/j.frl.2019.101314
M3 - Article
AN - SCOPUS:85075486689
VL - 36
JO - Finance Research Letters
JF - Finance Research Letters
SN - 1544-6123
M1 - 101314
ER -