Do Political News Affect Financial Markets? Evidence from Exchange Rate and Investor Trading Behavior in Korea

Key Points

• The research aims to explore the effect of political news on exchange rates and investor trading behavior in Korea.
• Collected political news from major media in Korea and the USA.
• Conducted sentiment analysis on news articles using GPT-4o API.
• Analyzed trading behaviors of institutional, retail, and foreign investors in response to news sentiment.
• The sentiment index significantly influenced the won/dollar exchange rate changes.
• Institutional investors showed net buying in response to positive news and net selling for negative news.
• Retail investors exhibited the opposite trading patterns to institutional investors.
• Foreign investors did not respond statistically significantly to the political news sentiment.

Abstract