Asymmetric dynamics between supply chain disruptions, oil price shocks, and U.S. investor sentiment

Abstract

The COVID-19 pandemic, ongoing Ukraine-Russian conflict, tensions in the Middle East, and US-China trade tensions have severely disrupted global supply chains and the oil market. Amid these distortions, the global supply chain pressures (GSCP) and oil price shocks (OPS) significantly influence investor sentiment. The global shocks are dynamic and asymmetric by nature. Therefore, this research explores the asymmetric impacts of GSCP and OPS on investor sentiment in the United States. We estimate both the short- and long-run associations with monthly data from 1998 to 2023 using a nonlinear autoregressive distributed lag model. After confirming the nonlinearity of the data and preliminary investigations, our long-run estimates reveal that positive GSCP shocks negatively impact investor sentiment, while negative GSCP shocks have insignificant effects. In contrast, positive and negative OPS shocks enhance investor sentiment. This study finds that negative shocks (GSCP-) have a more severe and prolonged impact on investor sentiment than positive shocks (GSCP+), highlighting the need for asymmetry in policy analysis. Similarly, OPS- exerts a stronger influence on investor sentiment than OPS+, with growing disparities over time, emphasizing the asymmetric nature of market reactions to shocks.The findings recommend that policymakers encourage supply chain resilience and diversification strategies to mitigate oil price uncertainty and supply chain disruptions.