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The impact of oil price shocks on U.S. bond market returns

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  • Kang, Wensheng
  • Ratti, Ronald A.
  • Yoon, Kyung Hwan

Abstract

This paper examines the effect of the demand and supply shocks driving the global crude oil market on aggregate U.S. bond index real returns. A positive oil market-specific demand shock is associated with significant decreases in aggregate bond index real returns for 8months following the shock. A positive innovation in aggregate demand has a negative effect on real bond return that is statistically significant and becomes more adverse over 24months. Structural shocks driving the global oil market jointly account for 27.1% of the variation in real bond returns at 24month horizon. A spillover index from rolling SVAR models is used to identify the interdependence between the oil market and bond returns. The mean for this spillover index is 0.381 over 2001:01–2011:12 and 0.476 over September through December 2008 during the height of the global financial crisis.

Suggested Citation

  • Kang, Wensheng & Ratti, Ronald A. & Yoon, Kyung Hwan, 2014. "The impact of oil price shocks on U.S. bond market returns," Energy Economics, Elsevier, vol. 44(C), pages 248-258.
  • Handle: RePEc:eee:eneeco:v:44:y:2014:i:c:p:248-258
    DOI: 10.1016/j.eneco.2014.04.009
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bastianin, Andrea & Manera, Matteo, 2018. "How Does Stock Market Volatility React To Oil Price Shocks?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(03), pages 666-682, April.
    2. Li, Lei & Yin, Libo & Zhou, Yimin, 2016. "Exogenous shocks and the spillover effects between uncertainty and oil price," Energy Economics, Elsevier, vol. 54(C), pages 224-234.
    3. repec:eee:eneeco:v:72:y:2018:i:c:p:97-107 is not listed on IDEAS
    4. repec:eee:quaeco:v:68:y:2018:i:c:p:10-22 is not listed on IDEAS
    5. repec:eee:jimfin:v:74:y:2017:i:c:p:137-146 is not listed on IDEAS
    6. repec:eee:eneeco:v:69:y:2018:i:c:p:101-110 is not listed on IDEAS
    7. repec:ces:ifobei:77 is not listed on IDEAS
    8. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Smyth, Russell, 2016. "Oil curse and finance–growth nexus in Malaysia: The role of investment," Energy Economics, Elsevier, vol. 57(C), pages 154-165.
    9. repec:eee:reveco:v:58:y:2018:i:c:p:179-199 is not listed on IDEAS
    10. Medovikov, Ivan, 2016. "When does the stock market listen to economic news? New evidence from copulas and news wires," Journal of Banking & Finance, Elsevier, vol. 65(C), pages 27-40.
    11. repec:hur:ijaraf:v:5:y:2015:i:1:p:109-129 is not listed on IDEAS
    12. Raymond Swaray & Afees A. Salisu, 2017. "The impact of crude oil prices on stock prices of oil firms: Should upstream-downstream dichotomy in supply chain be ignored?," Working Papers 021, Centre for Econometric and Allied Research, University of Ibadan.
    13. Wan, Jer-Yuh & Kao, Chung-Wei, 2015. "Interactions between oil and financial markets — Do conditions of financial stress matter?," Energy Economics, Elsevier, vol. 52(PA), pages 160-175.
    14. repec:eee:finana:v:57:y:2018:i:c:p:148-156 is not listed on IDEAS

    More about this item

    Keywords

    Demand shocks; Oil prices; Bond returns; Supply shocks;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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