Measuring the effect of the North Korea-U.S. summit on the South Korean stock market

Figures & data

Table 1. Events around the North Korea-U.S. summit

Event	Date	Description
1	7/03/2018	After visiting Kim in Pyongyang, Chung Eui-yong, the South Korean presidential national security director, says the North Korean leader is willing to discuss the fate of his nuclear arsenal with the US.
2	9/03/2018	Trump accepts Kim’s invitation to meet following a conversation with Moon’s envoys.
3	27/03/2018	Kim makes a surprise visit to Beijing for a meeting with Chinese President Xi Jinping in an apparent move to strengthen his leverage in advance of his negotiations with Trump.
4	18/04/2018	Trump confirms that Mike Pompeo, then the CIA chief, had met secretly with Kim in North Korea and said “a good relationship was formed” heading into the adversaries’ anticipated summit.
5	27/04/2018	Kim holds a summit meeting with Moon. The leaders announce aspirational goals of a nuclear-free peninsula and permanent peace.
6	7/05/2018	Kim makes the second visit to China to meet President Xi.
7	9/05/2018	Secretary of State Mike Pompeo travels to North Korea to meet Kim in preparation for the US-North Korean summit. North Korea releases three American detainees as a goodwill gesture ahead of a possible summit between Trump and Kim.
8	10/05/2018	President Trump announces he will meet Kim Jong-un on June 12 in Singapore to discuss the denuclearisation of the Korean peninsula.
9	12/05/2018	North Korea says it will hold a ceremony to dismantle its nuclear test site between May 23 and 25 and foreign journalists will be invited to attend.
10	16/05/2018	North Korea cancels talks with South Korea scheduled for the next day and threatened to cancel the Trump-Kim summit, citing discontent with US-South Korean joint military drills.
11	22/05/2018	Trump and Moon meet at the White House and express optimism for a successful summit between Trump and Kim. Moon says the “fate and the future of the Korean Peninsula hinge” on the meeting in Singapore.
12	24/05/2018	North Korea reports that it destroyed its nuclear testing site at Punggye-ri.
		In a letter to Kim, Trump cancels the US-North Korean summit scheduled for June 12, citing “tremendous anger and hostility” displayed by Pyongyang.
13	25/05/2018	In response to Trump’s letter, Kim Kye Gwan, North Korean first minister of foreign affairs, states that North Korea “has the intent to sit with the US side regardless of ways at any time”.
14	1/06/2018	President Trump takes a U-turn and confirms that he would meet Kim for a historic summit in Singapore on June 12 and that it will be the beginning of a “process.”
15	12/06/2018	President Trump and North Korean leader Kim meet for a historic face-to-face summit.

Table 2. Negative reactions following the events around the summit (in %)

Sector	Event	Date	AR	t-stat
Aerospace and Defense	1	7/03/2018	−3.07	−2.47
Automobiles and Parts	1	7/03/2018	−1.53	−2.11
	10	16/05/2018	−2.17	−2.79
	13	25/05/2018	−2.36	−3.03
Beverages	15	12/06/2018	−3.72	−2.97
Chemicals	10	16/05/2018	−3.14	−4.45
	13	25/05/2018	−2.11	−2.96
Electricity	10	16/05/2018	−2.84	−2.15
Electrical and Electronic Equipment	10	16/05/2018	−3.84	−4.59
	13	25/05/2018	−2.52	−3.02
Financial Services	1	7/03/2018	−1.87	−2.53
	10	16/05/2018	−1.88	−2.48
	13	25/05/2018	−1.73	−2.27
Forestry and Papers	10	16/05/2018	−3.98	−3.66
	13	25/05/2018	−2.67	−2.45
General Industrials	10	16/05/2018	−4.76	−5.69
	13	25/05/2018	−3.01	−3.53
Leisure Good	4	18/04/2018	−1.56	−1.53
	10	16/05/2018	−2.32	−2.29
Life Insurance	5	27/04/2018	−2.06	−1.98
	12	24/05/2018	−2.27	−2.17
Media	1	7/03/2018	−1.84	−2.19
	13	25/05/2018	−1.73	−2.01
Mining	10	16/05/2018	−7.03	−2.26
Personal Goods	2	9/03/2018	2.12	2.38
	10	16/05/2018	−2.54	−2.76
	13	25/05/2018	−2.60	−2.87
Real Estate Investment Trust	13	25/05/2018	−2.30	−3.64
Software and Computer Services	10	16/05/2018	−2.54	−3.00
	13	25/05/2018	−2.22	−2.63
Technology Hardware and Equipment Services	10	16/05/2018	−2.67	−3.19
	13	25/05/2018	−1.72	−2.05

Table 3. Positive reactions following the events around the summit (in %)

Sector	Event	Date	AR	t-stat
Equity Investment Instrument	3	27/03/2018	2.86	2.04
General Retailers	2	9/03/2018	1.92	2.69
HealthCare Equipment and Services	7	9/05/2018	3.78	3.28
Tobacco	8	10/05/2018	4.47	3.27

Table 4. Mixed reactions following the events around the summit (in %)

Sector	Event	Date	AR	t-stat
Alternative Energy	8	10/05/2018	3.27	2.00
	10	16/05/2018	−6.94	−4.26
Construction and Materials	2	9/03/2018	1.69	2.45
	9	14/05/2018	4.63	3.36
	10	16/05/2018	−6.48	−4.71
	13	25/05/2018	−6.70	−4.74
Food Producers	2	9/03/2018	1.53	2.22
	10	16/05/2018	−2.46	−3.09
	13	25/05/2018	−2.41	−2.97
Gas, Water and Multiutilities	9	14/05/2018	1.77	2.80
	13	25/05/2018	−1.11	−2.12
Household Equipment and Services	2	9/03/2018	1.99	2.46
	10	16/05/2018	−2.81	−3.29
	13	25/05/2018	−2.81	−3.33
Industrial Engineering	9	14/05/2018	2.46	2.65
	10	16/05/2018	−4.63	−4.99
	13	25/05/2018	−4.34	−4.64
Industrial Metals and Mining	8	10/05/2018	2.59	2.12
	9	14/05/2018	2.84	2.33
	10	16/05/2018	−7.96	−6.53
	13	25/05/2018	−6.82	−5.50
Industrial Transportation	8	10/05/2018	3.89	4.12
	9	14/05/2018	2.28	2.33
	10	16/05/2018	−4.44	−4.51
	13	25/05/2018	−3.62	−3.63
	15	12/06/2018	−2.11	−2.03
Mobile Telecommunications	1	7/03/2018	−3.45	−2.16
	8	10/05/2018	5.19	3.05
Oil and Gas Producers	4	18/04/2018	1.69	2.16
	9	14/05/2018	2.60	2.88
	10	16/05/2018	−3.02	−3.38
	13	25/05/2018	−3.59	−3.96
Personal Goods	2	9/03/2018	2.12	2.38
	10	16/05/2018	−2.54	−2.76
	13	25/05/2018	−2.60	−2.87
Pharmaceuticals and Biotechnology	4	18/04/2018	−3.95	−2.86
	7	9/05/2018	3.64	2.61
Support Services	10	16/05/2018	−2.96	−3.65
	13	25/05/2018	−3.54	−4.31
	14	1/06/2018	1.76	2.07
Travel and Leisure	2	9/03/2018	3.59	3.94
	13	25/05/2018	−3.00	−3.01

Table 5. Sectoral reactions when North Korea threatens to cancel the summit on 16 May 2018 (in %)

Sector	CAR-2	t-stat	CAR-5	t-stat	AR	t-stat	CAR2	t-stat	CAR5	t-stat	CAR10	t-stat
Alternative Energy	3.15	1.38	3.54	1.00	−6.94	−4.26	0.05	0.02	−1.75	−0.50	−4.84	−0.97
Automobiles and Parts	1.08	0.92	3.83	1.98	−2.17	−2.79	3.53	3.02	2.81	1.45	0.00	0.00
Chemicals	0.61	0.61	2.99	1.92	−3.14	−4.45	2.20	2.20	1.32	0.85	0.21	0.10
Construction and Materials	5.80	3.23	8.49	3.18	−6.48	−4.71	2.35	1.31	−0.40	−0.15	0.08	0.02
Electricity	0.88	0.47	−2.93	−1.12	−2.84	−2.15	0.08	0.04	−1.01	−0.39	−1.94	−0.57
Electrical and Electronic Equipment	1.77	1.42	4.68	2.34	−3.84	−4.59	1.95	1.56	1.46	0.73	1.57	0.58
Financial Services	0.48	0.43	3.33	1.84	−1.88	−2.48	1.51	1.35	1.00	0.55	−0.13	−0.05
Food Producers	1.10	0.94	2.97	1.58	−2.46	−3.09	1.70	1.45	0.49	0.26	−0.91	−0.34
Forestry and Papers	1.33	0.84	4.50	1.90	−3.98	−3.66	5.68	3.60	6.59	2.79	4.75	1.33
General Industrials	1.77	1.48	4.00	2.02	−4.76	−5.69	1.27	1.07	1.18	0.60	−2.43	−0.78
Household Equipment and Services	0.96	0.75	1.61	0.81	−2.81	−3.29	2.45	1.92	1.61	0.81	0.41	0.15
Industrial Engineering	2.44	1.77	5.81	2.71	−4.63	−4.99	1.37	0.99	0.56	0.26	−0.42	−0.15
Industrial Metals and Mining	3.65	2.28	6.33	2.52	−7.96	−6.53	2.44	1.52	−0.55	−0.22	−2.74	−0.73
Industrial Transportation	3.31	2.51	8.12	4.17	−4.44	−4.51	1.47	1.11	−0.27	−0.14	−1.34	−0.51
Leisure Good	0.13	0.09	2.58	1.07	−2.32	−2.29	2.52	1.73	1.69	0.71	2.07	0.65
Mining	−0.18	−0.04	0.31	0.04	−7.03	−2.26	4.57	1.02	2.39	0.34	−3.74	−0.38
Oil and Gas Producers	3.00	2.46	4.35	2.36	−3.02	−3.38	3.92	3.25	4.55	2.55	2.84	1.19
Personal Goods	0.15	0.11	1.91	0.90	−2.54	−2.76	2.20	1.68	1.33	0.63	0.93	0.30
Software and Computer Services	−0.14	−0.11	3.05	1.40	−2.54	−3.00	1.89	1.48	0.82	0.38	1.80	0.57
Support Services	1.78	1.51	3.68	1.83	−2.96	−3.65	1.39	1.17	1.12	0.56	1.09	0.37
Technology Hardware and Equipment Services	−0.01	−0.01	3.05	1.45	−2.67	−3.19	2.36	1.85	2.00	0.95	2.61	0.91

Table 6. Sectoral reactions when North Korea responds to Trump’s decision to cancel the summit on 25 May 2018 (in %)

Sector	CAR-2	t-stat	CAR-5	t-stat	AR	t-stat	CAR2	t-stat	CAR5	t-stat	CAR10	t-stat
Automobiles and Parts	−2.28	−1.95	−0.13	−0.07	−2.36	−3.03	1.08	0.91	0.53	0.27	3.02	1.12
Chemicals	−1.20	−1.20	−0.01	−0.01	−2.11	−2.96	1.34	1.30	1.99	1.25	2.92	1.39
Construction and Materials	−3.98	−2.18	−4.64	−1.71	−6.70	−4.74	8.94	4.85	9.01	3.19	5.61	1.33
Electrical and Electronic Equipment	−1.08	−0.86	0.13	0.07	−2.52	−3.02	2.61	2.05	3.00	1.46	4.30	1.53
Financial Services	−1.12	−1.00	−0.30	−0.17	−1.73	−2.27	0.68	0.59	0.06	0.03	0.57	0.21
Food Producers	−2.55	−2.17	−1.31	−0.69	−2.41	−2.97	1.75	1.47	4.01	2.08	5.84	2.12
Forestry and Papers	−3.35	−2.12	3.78	1.59	−2.67	−2.45	1.08	0.68	3.07	1.26	1.20	0.33
Gas, Water and Multiutilities	0.41	0.56	1.83	1.47	−1.11	−2.12	2.49	3.47	2.27	1.84	1.50	0.76
General Industrials	−2.37	−1.98	−1.20	−0.61	−3.01	−3.53	1.77	1.44	1.58	0.76	0.04	0.01
Household Equipment and Services	−1.43	−1.13	0.12	0.06	−2.81	−3.33	2.57	1.97	2.43	1.16	2.34	0.80
Industrial Engineering	−0.68	−0.49	−0.70	−0.32	−4.34	−4.64	2.38	1.71	1.61	0.75	3.12	1.06
Industrial Metals and Mining	−4.04	−2.51	−4.22	−1.67	−6.82	−5.50	6.34	3.91	7.55	2.98	8.24	2.05
Industrial Transportation	−2.12	−1.58	−2.06	−1.03	−3.62	−3.63	3.94	2.92	4.20	2.07	6.89	2.49
Media	−0.02	−0.01	1.63	0.86	−1.73	−2.01	2.96	2.35	3.14	1.64	3.61	1.32
Oil and Gas Producers	−0.82	−0.68	1.37	0.77	−3.59	−3.96	3.04	2.50	4.97	2.75	5.16	2.11
Personal Goods	−0.13	−0.10	1.94	0.91	−2.60	−2.87	1.28	0.96	2.47	1.12	2.71	0.83
Real Estate Investment Trust	−0.89	−1.06	−1.20	−0.94	−2.30	−3.64	0.97	1.14	0.28	0.21	1.36	0.74
Software and Computer Services	−0.50	−0.40	0.39	0.18	−2.22	−2.63	2.01	1.57	3.01	1.37	3.64	1.15
Support Services	−0.19	−0.16	0.52	0.25	−3.54	−4.31	3.18	2.53	5.85	2.60	5.82	1.80
Technology Hardware and Equipment Services	0.04	0.03	1.69	0.80	−1.72	−2.05	1.23	0.94	2.22	1.03	3.70	1.25
Travel and Leisure	−1.10	−0.77	−2.08	−0.90	−3.00	−3.01	2.47	1.70	3.78	1.59	2.64	0.76

Table 7. Robustness tests for sectoral reactions on 16 May 2018

		Chesney		Market Integration		Firm-specific Removal		Fama French Five-Factor Model
Sector	tCorrado	CP	t-stat	AR(%)	t-stat	AR(%)	t-stat	AR(%)	t-stat
Alternative Energy	−3.63	0.22	0.83	−6.78	−4.18	N/A	N/A	−6.02	−3.59
Automobiles and Parts	−2.59	0.25	0.71	−2.21	−2.84	−3.24	−3.72	−1.74	−2.11
Chemicals	−3.22	0.06	1.90	−3.29	−4.67	−3.69	−4.89	−2.55	−3.05
Construction and Materials	−3.26	0.30	0.57	−6.40	−4.72	−6.89	−5.01	−5.85	−4.16
Electricity	−2.34	0.41	0.24	−2.82	−2.12	−1.60	−1.56	−2.44	−1.80
Electrical and Electronic Equipment	−3.11	0.01	3.29	−3.82	−4.59	−3.80	−4.19	−3.03	−3.17
Financial Services	−2.02	0.46	0.09	−1.81	−2.38	−2.44	−2.90	−0.86	−0.91
Food Producers	−2.01	0.49	0.01	−2.60	−3.26	−2.37	−3.01	−2.11	−2.46
Forestry and Papers	−2.92	0.03	2.54	−4.16	−3.87	−5.71	−5.40	−3.58	−3.21
General Industrials	−3.49	0.19	0.98	−4.72	−5.67	−4.43	−5.59	−4.18	−4.67
Household Equipment and Services	−2.47	0.08	1.69	−3.13	−3.71	−1.30	−1.31	−2.65	−3.01
Industrial Engineering	−3.55	0.01	3.03	−4.55	−4.97	−4.85	−4.95	−3.86	−3.82
Industrial Metals and Mining	−3.69	0.02	2.91	−7.89	−6.52	−8.72	−7.39	−7.30	−5.75
Industrial Transportation	−2.94	0.06	1.86	−4.34	−4.47	−4.80	−3.82	−3.91	−3.71
Leisure Good	−1.91	0.01	3.99	−2.36	−2.30	−2.79	−2.52	−1.33	−1.14
Mining	−2.07	0.02	2.89	−7.32	−2.35	−4.98	−1.10	−6.01	−1.89
Oil and Gas Producers	−1.79	0.15	1.16	−2.92	−3.30	−4.95	−4.31	−2.60	−2.77
Personal Goods	−2.12	0.02	2.65	−2.36	−2.63	−2.61	−3.12	−1.95	−2.04
Software and Computer Services	−2.39	0.05	1.99	−2.43	−3.06	−2.00	−2.18	−1.60	−1.72
Support Services	−2.56	0.05	1.96	−2.91	−3.62	−1.92	−1.99	−2.39	−2.71
Technology Hardware and Equipment Services	−2.91	0.27	0.65	−2.70	−3.26	−3.09	−3.52	−1.75	−1.78

Figure 1. Number of sectoral reactions following each event around the summit.

Table 8. Robustness tests for sectoral reactions on 25 May 2018

25/05/2018		Chesney		Market Integration		Firm-specific Removal		Fama French Five-Factor Model
Sector	tCorrado	CP	t-stat	AR(%)	t-stat	AR(%)	t-stat	AR(%)	t-stat
Automobiles and Parts	−2.99	0.06	1.86	−2.34	−3.01	−2.31	−2.93	−2.36	−2.85
Chemicals	−2.73	0.02	2.92	−2.07	−2.92	−2.28	−3.14	−2.05	−2.42
Construction and Materials	−3.34	0.01	3.19	−6.50	−4.66	−5.55	−4.21	−6.60	−4.56
Electrical and Electronic Equipment	−2.32	0.22	0.83	−2.51	−3.02	−2.74	−3.10	−2.53	−2.64
Financial Services	−2.46	0.04	2.21	−1.60	−2.11	−2.66	−2.99	−1.71	−1.81
Food Producers	−2.60	0.39	0.28	−2.39	−2.93	−2.48	−2.95	−2.53	−2.87
Forestry and Papers	−2.70	0.31	0.53	−2.62	−2.43	−2.92	−2.46	−2.70	−2.41
Gas, Water and Multiutilities	−1.96	0.24	0.75	−1.07	−2.11	−0.63	−1.16	−1.11	−2.08
General Industrials	−2.96	0.34	0.43	−2.92	−3.44	−2.79	−2.98	−2.97	−3.24
Household Equipment and Services	−2.33	0.03	2.31	−2.89	−3.44	−2.32	−2.54	−2.93	−3.36
Industrial Engineering	−3.01	0.03	2.48	−4.13	−4.48	−3.50	−3.61	−4.24	−4.14
Industrial Metals and Mining	−3.39	0.01	3.46	−6.71	−5.45	−4.67	−4.08	−6.80	−5.24
Industrial Transportation	−3.38	0.02	2.95	−3.47	−3.52	−4.70	−3.55	−3.57	−3.33
Media	−2.05	0.02	2.44	−1.61	−1.91	−1.75	−2.14	−1.76	−1.90
Oil and Gas Producers	−1.61	0.02	2.72	−3.48	−3.87	−8.31	−5.29	−3.54	−3.68
Personal Goods	−2.51	0.01	3.69	−2.68	−3.04	−2.69	−3.14	−2.84	−3.02
Real Estate Investment Trust	−3.45	0.01	3.23	−2.30	−3.45	−2.37	−3.34	−2.22	−3.29
Software and Computer Services	−2.42	0.05	2.07	−1.90	−2.40	−2.03	−2.17	−2.01	−2.16
Support Services	−2.82	0.39	0.30	−3.46	−4.24	−1.71	−1.91	−3.52	−3.92
Technology Hardware and Equipment Services	−2.21	0.06	1.88	−1.69	−2.03	−1.90	−2.19	−1.70	−1.73
Travel and Leisure	−2.65	0.15	1.17	−2.96	−2.99	−2.87	−1.67	−3.13	−2.96

Table 9. Aggregate change in systematic risk following the announcements around the summit

				Aggregate Change in Beta
Sector	Intercept	Change in Intercept	Beta	GARCH (1,1)	OLS	TARCH	EGARCH	PARCH
Construction and Materials	0.00	0.00	0.54	−1.17	−0.79	−1.26	−1.28	3.08
t-stat	0.31	1.26	76.68	−6.10	−1.55	−6.67	−6.95	9.63
Industrial Metals and Mining	0.00	0.00	0.52	−0.86	−0.29	1.90	−1.11	−0.91
t-stat	1.17	−0.99	76.58	−3.11	−0.59	10.66	−3.59	−3.40
Mobile Telecommunications	0.00	−0.01	0.57	1.55	1.08	1.55	1.60	1.58
t-stat	−1.10	−2.12	45.97	3.47	1.44	3.46	3.69	3.59

Figure 2. Short-term change in systematic risk following the events around the summit.

Figure 3. Long-term changes in systematic risk following the events around the summit.

Table 10. Difference in abnormal returns using various asset pricing models on 16 May 2018

Sector	D12	D13	D23
Alternative Energy	−2.24%	−13.27%	−11.28%
Automobiles and Parts	1.81%	−19.69%	−21.12%
Chemicals	4.63%	−18.64%	−22.24%
Construction and Materials	−1.21%	−9.77%	−8.66%
Electricity	−0.79%	−14.24%	−13.56%
Electrical and Electronic Equipment	−0.39%	−21.08%	−20.76%
Financial Services	−4.00%	−54.60%	−52.71%
Food Producers	5.63%	−14.44%	−19.00%
Forestry and Papers	4.57%	−10.07%	−14.00%
General Industrials	−0.87%	−12.23%	−11.46%
Household Equipment and Services	11.43%	−5.79%	−15.46%
Industrial Engineering	−1.87%	−16.66%	−15.07%
Industrial Metals and Mining	−0.93%	−8.29%	−7.43%
Industrial Transportation	−2.26%	−11.88%	−9.84%
Leisure Good	2.06%	−42.79%	−43.95%
Mining	4.13%	−14.50%	−17.89%
Oil and Gas Producers	−3.23%	−13.79%	−10.92%
Personal Goods	−7.02%	−22.98%	−17.17%
Software and Computer Services	−4.25%	−37.03%	−34.24%
Support Services	−1.83%	−19.31%	−17.80%
Technology Hardware and Equipment Services	1.46%	−34.20%	−35.14%
Average	0.23%	−19.77%	−19.99%
Max	11.43%	−5.79%	−7.43%
Min	−7.02%	−54.60%	−52.71%

Table 11. Difference in abnormal returns using various asset pricing models on 25 May 2018

Sector	D12	D13	D23
Automobiles and Parts	−0.79%	−0.23%	0.56%
Chemicals	−1.62%	−2.65%	−1.05%
Construction and Materials	−3.06%	−1.47%	1.64%
Electrical and Electronic Equipment	−0.59%	0.22%	0.81%
Financial Services	−7.02%	−0.73%	6.77%
Food Producers	−1.07%	4.78%	5.91%
Forestry and Papers	−1.65%	1.35%	3.05%
Gas, Water and Multiutilities	−3.30%	−0.13%	3.28%
General Industrials	−3.05%	−1.13%	1.97%
Household Equipment and Services	2.58%	4.17%	1.56%
Industrial Engineering	−4.81%	−2.36%	2.58%
Industrial Metals and Mining	−1.64%	−0.28%	1.39%
Industrial Transportation	−4.08%	−1.51%	2.68%
Media	−6.93%	1.38%	8.93%
Oil and Gas Producers	−3.21%	−1.54%	1.72%
Personal Goods	3.21%	9.40%	5.99%
Real Estate Investment Trust	0.29%	−3.26%	−3.54%
Software and Computer Services	−14.21%	−9.32%	5.71%
Support Services	−2.07%	−0.51%	1.59%
Technology Hardware and Equipment Services	−1.97%	−0.94%	1.05%
Travel and Leisure	−1.34%	4.41%	5.82%
Average	−2.68%	−0.02%	2.78%
Max	3.21%	9.40%	8.93%
Min	−14.21%	−9.32%	−3.54%