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

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 p...

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Bibliographic Details
Published in:Energy economics 2014-07, Vol.44, p.248-258
Main Authors: Kang, Wensheng, Ratti, Ronald A., Yoon, Kyung Hwan
Format: Article
Language:English
Subjects:
Aggregates
Applied sciences
Bond market
Bond markets
Bond returns
Bonded joints
Bonding
Bonds
Crude oil
Crude oil prices
Demand (economics)
Demand shock
Demand shocks
Econometrics
Economic conditions
Economic crisis
Economic data
Economics
Energy
Energy economics
Energy market
Exact sciences and technology
Finance
Fossil fuels and derived products
General, economic and professional studies
Indexes
Markets
Methodology. Modelling
Oil
Oil price
Oil prices
Petroleum industry
Price shock
Prices
Studies
Supply and demand
Supply shock
Supply shocks
U.S.A
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Summary: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. •A positive oil market-specific demand shock causes decreases in real bond returns.•Innovation in aggregate demand negatively affects real bond returns.•Spillover of oil shocks and bond returns is higher in the global financial crisis.•Oil shocks account for 27.1% of the long-run variation in real bond returns.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2014.04.009