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Oil price uncertainty and movements in the US government bond risk premia

Mehmet Balcilar (), Rangan Gupta (), Shixuan Wang () and Mark Wohar ()

The North American Journal of Economics and Finance, 2020, vol. 52, issue C

Abstract: In this paper, we analyze the predictability of the movements of bond premia of US Treasury due to oil price uncertainty over the monthly period 1953:06 to 2016:12. For our purpose, we use a higher order nonparametric causality-in-quantiles framework, which in turn, allows us to test for predictability over the entire conditional distribution of not only bond returns, but also its volatility, by controlling for misspecification due to uncaptured nonlinearity and structural breaks, which we show to exist in our data. We find that oil uncertainty not only predicts (increases) US bond returns, but also its volatility, with the effect on the latter being stronger. In addition, oil uncertainty tends to have a stronger impact on the shortest and longest maturities (2- and 5-year), and relatively weaker impact on bonds with medium-term (3- and 4-year) maturities. Our results are robust to alternative measures of oil market uncertainty and bond market volatility.

Keywords: Oil price uncertainty; Bond returns and volatility; Higher-order nonparametric causality-in-quantiles test (search for similar items in EconPapers)
JEL-codes: C22 G12 Q02 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Oil Price Uncertainty and Movements in the US Government Bond Risk Premia (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940819301330

DOI: 10.1016/j.najef.2020.101147

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