Asymmetric effects of geopolitical risks on energy returns and volatility under different market conditions

Abstract

Based on daily data from 28 June 1990 to 31 October 2018, we investigate the asymmetric effects of geopolitical risks on energy (crude oil, gas and heating oil) returns and volatility under different market conditions by using a quantile regression model. The results show that geopolitical risks have significantly negative effects on crude oil returns in the bearish market and on heating oil returns in the normal and bullish markets but have no effects on gas returns. Meanwhile, the impacts of geopolitical risks on crude oil volatility are significantly positive in different market conditions, and the impacts on gas and heating oil volatility are mainly negative but not significant. In addition, we further divide geopolitical risks into geopolitical threats and geopolitical acts and find that geopolitical threats and acts have heterogeneous effects on energy returns and volatility.