'BOXPI' is short for Boxed Korea Composite Stock Price Index (KOSPI). This is a phenomenon that KOSPI has remained within a certain range even though global liquidity has been expanding between 2012 and 2016. To explain the BOXPI phenomenon, this paper derives a stochastic model describing sector rotation and use it to interpret BOXPI from sector rotation perspective. Our empirical analysis shows that sector rotation takes place according to the stages of the stock market scenarios - the Global Financial Crisis, the BOXPI period, and the upward break out of the BOXPI. We then investigate how differrernt the determinants of sector indices are for the BOXPI and the non-BOXPI periods by employing a Bayesian variable selection method. As a results, we find heterogeneous sets of the determinants of the cyclical and the defensive sector potfolio indices across the BOXPI and the non-BOXPI periods. 

JEL Classification: G11, G12, G14
Keywords: Bayesian Variable Selection, BOXPI, Korean Stock Market, Sector Rotation​