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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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    More about this item

    Keywords

    Demand shocks; Oil prices; Bond returns; Supply shocks;
    All these keywords.

    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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