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Economic policy uncertainty, geopolitical risk, market sentiment, and regional stocks: asymmetric analyses of the EU sectors

Author

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  • Ahmed Bossman

    (University of Cape Coast)

  • Mariya Gubareva

    (Universidade de Lisboa)

  • Tamara Teplova

    (National Research University Higher School of Economics/HSE University)

Abstract

The purpose of this study is to investigate the asymmetric effects of economic policy uncertainty (EPU), geopolitical risk (GPR), and market sentiment (VIX) on European Union (EU) stocks by sectors of economic activity. The design and methodological approach of our research are rooted in parametric and nonparametric quantile-based techniques. We employ monthly data covering eleven sectors of economic activity in addition to GPR, Global EPU, European Union EPU, United States EPU, and VIX. Our dataset covers the period between February 2013 and September 2022. Our findings show a generally low predictive power of the considered EPU measures on the stock returns of the EU sectors. Notwithstanding, the analysis reveals that EPU from the EU has the highest predictive ability on the EU sectoral stock returns while EPU from the US has no significant predictive ability on the stock returns from the EU. Our findings also highlight the asymmetric effects of various EPUs on EU stocks. Moreover, certain sectoral exposure to EU stocks, found to serve just as diversifiers in normal market conditions, could become a hedge and safe-haven against GPR in extreme economic conditions. Our findings also highlight the role of the VIX as a good gauge to hedge against the downside risks of the EU stocks. The originality of our work is two-fold. First, we extend the study of how global factors influence the EU stock market to the most recent period including the Russia–Ukraine conflict. Second, we perform this study on a sectoral basis. Therefore, the value of our findings is that they provide notable implications for market regulation and portfolio management.

Suggested Citation

  • Ahmed Bossman & Mariya Gubareva & Tamara Teplova, 2023. "Economic policy uncertainty, geopolitical risk, market sentiment, and regional stocks: asymmetric analyses of the EU sectors," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 321-372, December.
    • Handle: RePEc:spr:eurase:v:13:y:2023:i:3:d:10.1007_s40822-023-00234-y
    DOI: 10.1007/s40822-023-00234-y
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    Cited by:

    1. Tamara Teplova & Mariya Gubareva & Nikolai Kudriavtsev, 2023. "Social sentiment and exchange-specific liquidity at a Eurasian stock exchange outside of US market hours," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 753-802, December.
    2. Weidong Huo & Xiaoxian Chen & Lan Bo & Fangyong Luo, 2024. "Navigating Global Monetary Interdependencies: A Comprehensive Analysis of ECB Rate Hikes on China’s Technology-Driven Economy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(4), pages 18081-18115, December.
    3. Halil İbrahim Aydin & Aniela Bălăcescu & Genu Alexandru Căruntu, 2025. "The Effects of Geopolitical Uncertainties on Growth: Econometric Analysis on Selected Turkic Republican Countries and Neighboring States," Economies, MDPI, vol. 13(3), pages 1-16, March.
    4. Mellouli Dhoha & Wael Dammak & Hind Alnafisah & Ahmed Jeribi, 2024. "Dynamic spillovers between natural gas and BRICS stock markets during health and political crises," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(2), pages 453-485, June.

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    More about this item

    Keywords

    Geopolitics; Economic policy; Risk and uncertainty; Investor sentiment; Quantile analysis; European Union; Stock market;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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