Estimating Spillover Effect from International Oil Market to Stock Market: Evidence from Korean Portfolio-Level Analysis

Using a diagonal BEKK model, this paper estimates a spillover effect from the international crude oil market to the Korean stock market. Empirical results suggest that shocks and volatility in Dubai oil prices are significantly transmitted into twenty portfolios of the Korean stock market. Also, it was found that these spillover effects dramatically rose during the year 2020, when the threat of COVID-19 was the most serious. More specifically, oil-oriented portfolios, such as the power and gas firms' portfolio and chemical firms' portfolio, had a greater spillover effect from the international crude oil market rather than other portfolios. Further, compared to larger-capitalization firm portfolios, small-capitalization firm portfolios had a relatively greater spillover effect. Several implications and important avenues for further research are identified.