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Uncertainty about interest rates and crude oil prices

Author

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  • Mahmoud Qadan

    (University of Haifa, Faculty of Social Sciences, School of Business)

  • Gil Cohen

    (Western Galilee College, School of Management)

Abstract

The yield on the 10-year U.S. Treasury Note is among the most cited interest rates by investors, policymakers, and financial institutions. We show that the 10-year Treasury yield’s forward-looking volatility, a VIX-style measure that is a proxy for uncertainty about future interest rates, is a useful state variable capable of predicting the returns and volatility of crude oil prices over the near term. Using monthly data from 2003 to 2020, we document that higher implied volatility in the 10-year U.S. Treasury derivatives market predicts declining oil prices and higher forward-looking volatility in those prices. Our results are robust to different subsamples and various empirical designs.

Suggested Citation

  • Mahmoud Qadan & Gil Cohen, 2024. "Uncertainty about interest rates and crude oil prices," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-14, December.
    • Handle: RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-023-00551-w
    DOI: 10.1186/s40854-023-00551-w
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    More about this item

    Keywords

    Bond VIX; Forecasting; Treasury futures; Options; Implied volatility; Oil price;
    All these keywords.

    JEL classification:

    • 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
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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