Oil Price Shocks and Bond Risk Premia: Evidence from a Panel of 15 Countries

Leonardo Iania (), Marco Lyrio and Liana Nersisyan
Additional contact information
Leonardo Iania: Université catholique de Louvain, LIDAM/CORE, Belgium
Liana Nersisyan: Université catholique de Louvain, LIDAM

No 3299, LIDAM Reprints CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We study the effect of oil price shocks on bond risk premia. Based on Baumeister and Hamilton (2019), we identify the different sources of oil price shocks using a structural vector autoregressive (SVAR) model of the global market for crude oil. These structural factors are then used as unspanned factors in an affine term structure model based on the representation of (Joslin et al., 2014). This is done for a total of 15 countries. Unspanned factors are responsible for most of the variability in bond risk premia for short holding periods, while spanned factors dominate the variance decomposition for longer holding periods. In both cases, global oil supply and global economic activity are clearly the most important unspanned shocks. A historical decomposition around the outbreak of the COVID-19 crisis shows the clear influence of global economic activity shocks during the months of February and March 2020, increasing bond risk premia significantly.

Keywords: Oil prices shocks; affine term structure models; bond risk premia (search for similar items in EconPapers)
JEL-codes: C11 E43 E44 Q43 (search for similar items in EconPapers)
Pages: 50
Date: 2024-09-26
Note: In: Energy Economics, 2024
References: Add references at 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:cor:louvrp:3299

Access Statistics for this paper

More papers in LIDAM Reprints CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().