Causal nexus between crude oil and US corporate bonds

Syed Jawad Hussain Shahzad, Elie Bouri (), Jose Areola Hernandez and David Roubaud

The Quarterly Review of Economics and Finance, 2021, vol. 80, issue C, 577-589

Abstract: This study examines the Granger causal flow from implied oil volatility to US high-yield and investment-grade corporate bonds. The results show that the Granger causality differs over investment time horizons, with evidence of a more lasting effect for high-yield bonds. The oil price crash of mid-2014 intensifies the causal effect from oil price volatility to the high-yield bond market and its energy segment. Further analyses show that the US default risk and credit spread heterogeneously drive causalities from oil to high-yield and investment-grade bonds. These findings are useful to credit market participants for risk management and the design of appropriate asset allocation strategy. They are also important for policymakers regarding policy and regulatory formulations to manage the effects of volatility transmission.

Keywords: Oil price volatility; High-yield bonds; Investment-grade bonds; Energy bond index; Frequency domain causality; Bayesian model averaging (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:80:y:2021:i:c:p:577-589

DOI: 10.1016/j.qref.2021.04.012

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