Oil price uncertainty and movements in the US government bond risk premia |
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| Institution: | 1. Department of Economics, Eastern Mediterranean University, Famagusta, via Mersin 10, Northern Cyprus, Turkey;2. Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026- 1102, USA;3. Department of Economics, University of Pretoria, Pretoria, 0002, South Africa;4. College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA;5. School of Business and Economics, Loughborough University, Leicestershire, LE11 3TU, UK;1. USEK Business School, Holy Spirit University of Kaslik (USEK), Jounieh, Lebanon;2. Energy and Sustainable Development (ESD), Montpellier Business School, Montpellier, France;3. COMSATS Institute of Information Technology, Islamabad, Pakistan |
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| 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. |
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| Keywords: | Oil price uncertainty Bond returns and volatility Higher-order nonparametric causality-in-quantiles test |
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