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

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.