News Effects on Korean Democracy and Financial Market during COIVD-19 Recession

Purpose - The purpose of this paper is to analyze how news, including misinformation, impacted South Korea’s financial market and democratic processes during the COVID-19 recession, emphasizing behavioral biases and the dual role of news in crises. Design/Methodology/Approach - This paper employs an event-study methodology to analyze the Korean stock market’s reactions to good and bad news, using a dataset of financial and political news from 2020-2022, and integrates behavioral and efficient market hypotheses to explore the impact of misinformation on democratic engagement. Findings - The paper finds that the Korean stock market reacted more strongly to bad news than good news, especially during periods of negative momentum, reflecting confirmation bias. Hard news had a greater impact than soft news. It also reveals that misinformation significantly influenced political polarization and democratic engagement during the COVID-19 recession. Research Implications - The research underscores the importance of integrating behavioral perspectives with efficient market theories to understand market dynamics during crises, and highlights the need for strategies to mitigate the impact of misinformation on democratic stability and financial decision-making.