The Impact of Oil Price Shocks on U.S. Bond Market Returns

42 Pages Posted: 11 Apr 2014 Last revised: 14 Apr 2014

See all articles by Wensheng Kang

Wensheng Kang

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Kyung Hwan Yoon

Western Sydney University - Department of Economics & Finance

Date Written: April 1, 2014

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 8 months 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 24 months. Structural shocks driving the global oil market jointly account for 27.1% of the variation in real bond returns at 24 month 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.

Keywords: Demand shocks, Oil prices, Bond returns, Supply shocks

JEL Classification: E44, G12, Q43

Suggested Citation

Kang, Wensheng and Ratti, Ronald A. and Yoon, Kyung Hwan, The Impact of Oil Price Shocks on U.S. Bond Market Returns (April 1, 2014). CAMA Working Paper No. 33/2014, Available at SSRN: https://ssrn.com/abstract=2423167 or http://dx.doi.org/10.2139/ssrn.2423167

Ronald A. Ratti (Contact Author)

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

Kyung Hwan Yoon

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

No contact information is available for Wensheng Kang

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