Geopolitical Risk and Global Oil Price Volatility Effects on Energy Sector Returns: Evidence from Asia–Pacific Markets

Abstract

Introduction: The present study takes into account the geopolitical risk index, OVX, and monthly closing returns of energy stock indices from important countries located in the Asia Pacific region: Australia, China, Hong Kong, India, Japan, the Philippines, South Korea, Thailand, the United States, and Vietnam. Method: The MS-GARCH estimation results reveal that, with the exception of countries like Australia, Japan, and Hong Kong, all other countries demonstrate significant volatility and volatility clustering in their energy stock returns against OVX across the different regimes during the study period. Results: The MS-GARCH estimation results between energy stock returns and geopolitical risks of the select countries show that, except Australia, Hong Kong, and Vietnam, all other countries are affected significantly due to the presence of volatility and volatility clustering arising from geopolitical risks. Originality: The study takes an integrated, region-specific approach to comprehending how global oil price volatility and geopolitical risk interact to affect energy sector returns in the Asia-Pacific area. It simultaneously evaluates both geopolitical risk and oil market uncertainty using sophisticated econometric techniques that capture regime shifts, non-linear dynamics, and cross-market heterogeneity. Also, it offers new insights into how external shocks spread differentially across net-oil-importing and exporting economies by concentrating on Asia-Pacific markets. The study also presents comparative evidence from several Asia-Pacific markets, revealing structural variations influenced by market maturity, policy frameworks, and energy reliance. Conclusion: This study has successfully captured volatility clustering through various econometric mechanisms.