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

Resources Policy. 2023. Vol. 82. Article 103515.

Bossman A., Gubareva M., Teplova T.

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: хеджирование, диверсификация, diversification, квантильная регрессия, геополитический риск, hedge, Economic policy uncertainty, сентимент инвесторов, investor sentiment, Quantile-on-quantile regression, geopolitical risk, Russian-Ukrainian conflict, российско-украинский конфликт, Safe-haven, Causality-in-quantiles, активы-убежища, Quantile regression model, неопределенность экономической политики, квантильная причинность