A Study of Changes in Risk Appetite in the Stock Market and the Housing Market before and after the Global Financial Crisis in 2008 Using the vKOSPI

Abstract

This study analyzes the empirical relationship between the vKOSPI, which is the Korean VIX (implied volatility index), and the housing market (rent 1 -to-house price ratio) based on monthly data from January 2003 to November 2012. The data were divided into two parts before and after the global financial crisis in 2008 and were analyzed by using the Vector Autoregressive (VAR) Model. The research results show that the influence of vKOSPI on the housing market changes from symmetric to asymmetric since the global financial crisis in 2008. Before the global crisis in 2008, the influence of the vKOSPI on the house price index and rent index is almost the same, so the influence on the rent-to-house price ratio is not statistically significant. However, since the global crisis in 2008, the influence of the vKOSPI on the two prices has changed asymmetrically and the influence on the rent-to-house price ratio was statistically significant. Second, the influence of the vKOSPI fluctuation on house sale prices and rent is shown differently according to the rise/fall of the vKOSPI. In the event of the vKOSPI rising, house prices would fall greatly. On the other hand, in the event of the vKOSPI falling, the rise in housing prices is relatively small. This means that while the boosted sentiment of investors in the stock market is not transferred to the housing sales market, the aggravated sentiment of investors affects the housing sales market easily. In conclusion, the uncertainty has been represented in the vKOSPI and the preference for risky assets has an asymmetrical influence on the market dependent upon the kind of market. We suspect that this is caused by complex factors including shrinking expectations for future house prices.