Job Talk: Market Expectations of Interstate Disputes: An Analysis of the Effect of MIDs on Yields of Government Bonds

Kyu Young Lee

"Market Expectations of Interstate Disputes: An Analysis of the Effect of MIDs on Yields of Government Bonds"

Friday, March 4,  2 pm, MB 201

Abstract 

How do financial markets react to Militarized Interstate Disputes (MIDs)?  This study focuses on to what extent and in what ways government bond markets fluctuate with the onset of MIDs.  Under the assumption that the value of government bonds reflects investors’ assessments of states’ political and economic stability, the credibility of their conflict signals is especially vital to the market determination of bond yields.  I argue that investors do not necessarily show negative reactions to all kinds of MIDs.  Rather, the impact of interstate disputes on the values of government bonds depends on investors’ expectations of the likelihood of an actual war.  High-cost signals, which explicitly indicate that the prospect of war is imminent among states, incur an increase in belligerents’ bond yields, whereas cheap signals, which do not ensure states’ participation in war but heighten the stakes, do not make a difference in the bond yields.  Moreover, the effect of states’ high-cost signals on bond yields depends on investors’ prediction about a state’s winning probability.  By conducting panel regressions, my analyses on the bond yields of 30 countries for the period of 1816-2010 provide supportive evidence for my arguments.

Biography 
I am a Ph.D. candidate at the University of Iowa, expecting to graduate in July 2016. I completed my bachelor’s and master’s degree in Political Science at Seoul National University in South Korea.  I specialize in International Relations and Comparative Politics, specifically, International and Comparative Political Economy.  My primary agenda focuses on the intertwined relationship between financial markets and states’ security policies.  My topic bridges the two big areas of IR, Political Economy and Conflict.  I have broad experiences teaching all areas of International Relations, including both introductory and advanced undergraduate courses. Besides research and teaching, I love travelling and new adventures.  I spent most of my elementary school years in Germany, which allowed me to travel all over Europe. Another experience that has broadened my horizon was the opportunity to study at the University of Iowa.