Asymmetric price adjustment between gasoline market and crude oil market when price is up and down

This article analyses the crude oil and gasoline price adjustments due to extreme price rise and price fall in the economic environment without market power. Using daily data for the period May 2000 to May 2005, this article adopts GARCH model with generalized error distribution to estimate the time-varying Value at Risk in both upside and downside directions at confidence level of 90% and 95%, and then uses granger causality in risk to investigate the extreme co-movement in both upside and downside directions between crude oil markets and gasoline markets from three continents in the world. The empirical results show that oil price adjustment exhibits asymmetric relationship, namely, the rise of price will transmit to another market within one day, while the decline of price will transmit to another market with delay. This means that the efficiency of information transmission when price are rising is higher than the instance when price are falling. Our results do not support the popular opinion that the asymmetric gasoline price adjustment is due to the market power.