We examine the asymmetric impact of oil, and economic policy uncertainty shocks on the emerging markets composite sectoral equity indexes. We use the novel shock decomposition approach propounded by Ready (2018) to disentangle the oil price changes into the oil demand, supply and risk shocks. We find that the demand shocks are positively related to sectoral returns. However, the supply, risk and EPU shocks are negatively associated with sectoral returns. Additionally, the sectoral returns are mainly vulnerable to these shocks at the bearish market conditions. Further, we also investigate the asymmetric exposure of sectoral returns to these shocks, and we find that the lower demand shocks are associated with higher returns. Besides, the higher supply, risk and EPU shocks have a more intense impact on sectoral returns than otherwise. Hence, we document the evidence of the asymmetric relationship of oil and EPU shocks with sectoral returns. We believe that our results are novel and add value to the existing literature in this domain.
