Rare Disaster Risks and Volatility of the Term-Structure of US Treasury Securities: The Role of El Nino and La Nina Events

Renee van Eyden (), Rangan Gupta, Jacobus Nel () and Elie Bouri ()
Additional contact information
Jacobus Nel: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202155, Working Papers from University of Pretoria, Department of Economics

Abstract: The purpose of this paper is to determine the impact of rare disaster risks, captured by the El Nino-Southern Oscillation (ENSO) cycle, on the volatility of Treasury securities of the United States (US) involving 1- to 360-month maturities. We use a random coefficients panel-data-based heterogeneous autoregressive-realized variance (HAR-RV) model over the monthly period of 1961:06 to 2019:12, with the RV derived from the sum of squared daily changes in yield over a month. Our results show a positive and statistically significant (at the 1% level) impact of the ENSO cycle on RV, with the results being robust to alternative metrics of the ENSO, consideration of lagged impact, and decomposition of the ENSO cycle into El Nino and La Nina phases, with the former having a relatively stronger effect. With our panel estimation method using heterogeneous slope coefficients, we find that the effect on the entire term structure is positive, with higher impacts observed at the two-ends and the middle-part of the term-structure. Our results have important implications for investors in US Treasury securities.

Keywords: Rare Disaster Risks; ENSO Cycle; Term-Structure Volatility; US Treasury Securities; Panel HAR-RV Model (search for similar items in EconPapers)
JEL-codes: C33 E43 Q54 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2021-08
New Economics Papers: this item is included in nep-env, nep-isf, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202155

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().