Evaluating Dynamic Connectedness Between Economic Sanctions Sentiment, Uncertainty Factors, and Financial Assets: A Quantile VAR Approach

This paper investigates the dynamic connection between investor sentiment and a range of asset classes during the Russia-Ukraine conflict. Using daily data from January 1, 2022, to April 20, 2023, we employ the Quantile Vector Autoregressive (QVAR) connectedness framework to examine the connectedness of investor sentiment, financial stress, geopolitical risk, on commodities, fiat currencies, and stock markets. Our results reveal a time-varying and quantile-dependent pattern of connectedness, with RUWESsent consistently emerging as the primary net transmitter of shocks across all quantiles. Furthermore, the net directional connectedness highlights persistent and robust spillovers between RUWESsent, the Financial Stress Index (FSI), the Geopolitical Risk Index (GPR), and key financial assets throughout much of the sample period. This underscores a high degree of connectedness between sentiment-driven uncertainty and asset price dynamics. These findings provide valuable insights for investors, portfolio managers, regulators, and policymakers, emphasizing the importance of monitoring sentiment and geopolitical developments when formulating financial strategies during periods of heightened uncertainty.