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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.
Bossman et al. (Sun,) studied this question.