EU sectoral stocks amid geopolitical risk, market sentiment, and crude oil implied volatility: An asymmetric analysis of the Russia-Ukraine tensions

Ahmed Bossman, Mariya Gubareva and Tamara Teplova

Resources Policy, 2023, vol. 82, issue C

Abstract: This study examines the asymmetric relationships between EU sectoral stocks and oil, oil implied volatility, geopolitical risk, and market sentiment during turbulent times of geopolitical unrest. In a set of parametric and nonparametric quantile-based techniques, we employ daily data on eleven sectors of economic activity in addition to crude oil prices (WTI) and three sentiment-driven indices tracking the crude oil volatility (OVX), geopolitical risk (GPR), and investor sentiment (VIX) over the period between January 2020 and October 2022. Findings from the causality-in-quantile-means test suggest that the sectoral stock returns from the EU are asymmetrically predicted by WTI, OVX, VIX and GPR. The findings from the quantile regression and quantile-on-quantile regression metrics demonstrate that (i) in bearish periods, EU sectoral stocks could hedge against GPR, (ii) WTI does not serve as a hedge for EU stocks regardless of the sector of economic activity, and (iii) OVX and VIX possess some hedging and safe-haven attributes against EU stocks. These findings have notable implications for market regulation and portfolio management.

Keywords: Geopolitical risk; Economic policy uncertainty; Investor sentiment; Russian-Ukrainian conflict; Causality-in-quantiles; Quantile regression model; Quantile-on-quantile regression; Hedge; Diversification; Safe-haven (search for similar items in EconPapers)
JEL-codes: C32 C58 G01 G10 G11 Q02 Q41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:82:y:2023:i:c:s0301420723002234

DOI: 10.1016/j.resourpol.2023.103515

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