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Oil price uncertainty shock and Korean sectoral stock market: The role of common factor and asymmetry

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  • Lee, Geon Hee
  • Kim, Young Min

Abstract

This study investigates the roles of common factor in the heterogeneous impact of oil price uncertainty shocks on the Korean sectoral stock market between January 2000 and December 2022. Our results show that, when controlling for the common factor in the sectoral stock returns, sectoral heterogeneity is observed, but without considering the common factor, the impact of oil price uncertainty exhibits similar responses across all sectors. We also examine the asymmetric relationship between oil price uncertainty and the Korean sectoral stock market by using a Markov-switching structural vector autoregression. We confirm the asymmetric effects of shocks arising from the regime of high- and low-oil price uncertainty in most sectors. Our results emphasize the necessity of accounting for the common factor and asymmetry to precisely analyze the relationship between oil price uncertainty and the Korean sectoral stock market.

Suggested Citation

  • Lee, Geon Hee & Kim, Young Min, 2025. "Oil price uncertainty shock and Korean sectoral stock market: The role of common factor and asymmetry," Research in International Business and Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:riibaf:v:78:y:2025:i:c:s0275531925002454
    DOI: 10.1016/j.ribaf.2025.102989
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    Keywords

    Oil price uncertainty; Korean sectoral stock returns; Structural vectorautoregression; Asymmetric response;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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