Asymmetric transmission of AI and renewable energy equity shocks to U.S. oil sector performance: A regime-dependent analysis for sustainable investment

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Type of the article: Research Article

Abstract
This study empirically examines the dynamic and regime-dependent asymmetric effects of Artificial Intelligence (AI) and Renewable Energy (RE) equity returns on the performance of the U.S. oil sector. Utilizing daily closing prices from December 1, 2017 to October 31, 2025, we employ regime-dependent Vector Autoregression (VAR) models, supplemented by an illustrative Bayesian Time-Varying Parameter (TVP) VAR, to capture heterogeneous transmission mechanisms across bullish and bearish market regimes. The empirical findings show that the individual lagged effects of RE returns on oil returns emerge earlier during bearish markets – a pattern consistent with loss aversion and defensive sectoral rebalancing – whereas the cumulative contribution of RE shocks to oil return variation is larger during bullish phases. In contrast, the relationship between AI and oil shifts direction depending on the market: it is driven by growth when markets are up. Still, it acts as a direct risk transmitter during downturns. Notably, AI and oil equities co-move positively in both regimes, suggesting that their potential diversification benefits as hedges against one another may be limited, although hedge effectiveness is not formally tested here. Collectively, our results underscore that effective investment strategies and policy interventions must be explicitly conditioned on the prevailing market state. Future research avenues are suggested, including subsector-specific analysis and the use of direct technological adoption metrics, such as patent data.

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    • Figure 1. Oil, RE, and AI stock returns
    • Figure 2. Impulse response functions
    • Figure 3. Oil to RE stock returns in Bullish markets: Bayesian TVP-VAR (posterior medians of time-varying coefficients)
    • Figure 4. Oil to AI stock returns in Bullish markets: Bayesian TVP-VAR (posterior medians of time-varying coefficients)
    • Figure 5. Oil to RE stock returns in Bearish markets: Bayesian TVP-VAR (posterior medians of time-varying coefficients)
    • Figure 6. Oil to AI stock returns in Bearish markets: Bayesian TVP-VAR (posterior medians of time-varying coefficients)
    • Table 1. Descriptive statistics
    • Table 2. Correlation between Oil, RE and AI sectors
    • Table 3. Unit root test results
    • Table 4. Lag selection criteria
    • Table 5. Oil responses to RE and AI: VAR results during overall market conditions
    • Table 6. Oil responses to RE and AI: Variance decomposition during overall market conditions
    • Table 7. Oil responses to RE: VAR results during Bullish vs Bearish market conditions
    • Table 8. Oil responses to RE: Variance decomposition during Bullish and Bearish market conditions
    • Table 9. Oil responses to AI: VAR Results during Bullish vs Bearish market conditions
    • Table 10. Oil responses to AI: Variance decomposition during Bullish and Bearish market conditions
    • Table 11. Wald tests for regime-dependent coefficient asymmetry (βBear = βBull)
    • Table 12. Granger causality results
    • Conceptualization
      Saji Thazhungal Govindan Nair, Kanakachandran C. R., Bhasura Valsan K., Sivaprasad G.
    • Formal Analysis
      Saji Thazhungal Govindan Nair
    • Methodology
      Saji Thazhungal Govindan Nair
    • Software
      Saji Thazhungal Govindan Nair, Ratheesh K. Nair, Kanakachandran C. R., Bhasura Valsan K., Sivaprasad G.
    • Validation
      Saji Thazhungal Govindan Nair, Ratheesh K. Nair
    • Writing – original draft
      Saji Thazhungal Govindan Nair, Ratheesh K. Nair, Kanakachandran C. R., Bhasura Valsan K.
    • Writing – review & editing
      Saji Thazhungal Govindan Nair, Sivaprasad G.
    • Data curation
      Ratheesh K. Nair, Bhasura Valsan K.
    • Funding acquisition
      Ratheesh K. Nair, Kanakachandran C. R., Bhasura Valsan K.
    • Project administration
      Ratheesh K. Nair
    • Investigation
      Kanakachandran C. R., Sivaprasad G.
    • Visualization
      Kanakachandran C. R., Sivaprasad G.
    • Resources
      Bhasura Valsan K., Sivaprasad G.
    • Supervision
      Bhasura Valsan K.