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Oil Shocks, US Uncertainty, and Emerging Corporate Bond Markets

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  • Dohyoung Kwon

    (Department of Economics, Gachon University, 1342 Seongnamdaero, Sujeong-gu, Seongnam-si 13120, Republic of Korea)

Abstract

Using a structural VAR model, this paper investigates how oil price shocks and US uncertainty affect emerging market corporate bond returns. The key finding is that the response of emerging market corporate bond returns varies significantly depending on the underlying sources of oil price changes. Oil supply shocks generally have a negative impact on corporate bond returns, while aggregate demand and oil market-specific demand shocks lead to a temporary increase in returns, followed by a gradual fall. That is, when oil price increases are driven by stronger global economic activity or by speculative demand reflecting increased risk appetite, they can lead investors to search for higher yields in emerging markets, and thus raise corporate bond returns in the short term. Conversely, an unexpected rise in US uncertainty strengthens investors’ risk aversion and results in a substantial decline in emerging market corporate bond returns. These findings have crucial policy implications not only for portfolio strategies of global investors, but also for government authorities in emerging market economies.

Suggested Citation

  • Dohyoung Kwon, 2025. "Oil Shocks, US Uncertainty, and Emerging Corporate Bond Markets," JRFM, MDPI, vol. 18(1), pages 1-15, January.
  • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:1:p:25-:d:1563411
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    References listed on IDEAS

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    1. Basher, Syed A. & Sadorsky, Perry, 2006. "Oil price risk and emerging stock markets," Global Finance Journal, Elsevier, vol. 17(2), pages 224-251, December.
    2. Dohyoung Kwon, 2022. "The impacts of oil price shocks and United States economic uncertainty on global stock markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1595-1607, April.
    3. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2012. "Oil prices, exchange rates and emerging stock markets," Energy Economics, Elsevier, vol. 34(1), pages 227-240.
    4. Fang, Chung-Rou & You, Shih-Yi, 2014. "The impact of oil price shocks on the large emerging countries' stock prices: Evidence from China, India and Russia," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 330-338.
    5. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    6. Güntner, Jochen H. F., 2014. "How Do International Stock Markets Respond To Oil Demand And Supply Shocks?," Macroeconomic Dynamics, Cambridge University Press, vol. 18(8), pages 1657-1682, December.
    7. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    8. Dohyoung Kwon, 2019. "Oil shocks, US economic uncertainty, and emerging stock markets," Applied Economics Letters, Taylor & Francis Journals, vol. 26(18), pages 1472-1479, October.
    9. Morrison, Eleanor J., 2019. "Energy price implications for emerging market bond returns," Research in International Business and Finance, Elsevier, vol. 50(C), pages 398-415.
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    Cited by:

    1. Bechir Raggad & Elie Bouri, 2025. "Artificial intelligence and clean/dirty energy markets: tail-based pairwise connectedness and portfolio implications," Future Business Journal, Springer, vol. 11(1), pages 1-24, December.

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