The Asymmetry of Stock Index Returns: A Comparison of the Effects of Rising and Falling Oil Price Periods and Oil Price Shocks in Korea

Abstract

This paper examines to what extent the effects of oil price shocks have on stock index returns during two different periods of time: first, during the rising oil price period (2000~2008), and second, during the falling oil price period (2012~2015), respectively. To this end, this study uses the VAR model to see the dynamic interrelationship among the stock indices of 17 industries specifically, the KOSPI in South Korea, S&P 500 index and Dubai oil price. Results show that the stock index returns respond negatively during the rising oil price period while some of these returns respond positively during the falling oil price period. In addition, the coefficients of stock index returns relative to 17 industries are statistically more significant during the rising oil price period than the falling oil price period. This asymmetric response of stock index returns during the two different periods in South Korea is consistent with results from previous literature.