Hurting without Hitting: The Economic Cost of Political Tension

Yinghua He, Ulf Nielsson, Yonglei Wang

Research output: Contribution to journalJournal articleResearchpeer-review


Political tension that causes diplomatic strain rarely escalates into direct violence or war. This paper identifies the economic effects of such non-violent political tension by examining Taiwan’s sovereignty debate. Non-violent events harming the relationship with mainland China lead to an average daily drop of 200 basis points in Taiwanese stock returns. The impact is more severe on firms openly supporting the Taiwanese pro-independence party. Through a series of tests, we show that this economic penalty is targeted at pro-independence firms that are economically exposed to mainland China via either investments or exports.
Original languageEnglish
JournalJournal of International Financial Markets, Institutions & Money
Pages (from-to)106-124
Number of pages19
Publication statusPublished - Nov 2017


  • Political tension
  • Political connections
  • China
  • Taiwan

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