Title

Oil price shocks and the term structure of the US yield curve: a time–frequency analysis of spillovers and risk transmission

Document Type

Article

Source of Publication

Annals of Operations Research

Publication Date

6-4-2022

Abstract

This paper investigates the influence of oil demand, oil supply, and risk-driven shocks on the yield curve in the US between 1995 and 2020. The US term-structure shape is modeled by three structural factors, the level, slope, and curvature. Their empirical analysis is performed according to the Diebold-Li modified variant of the widely used Nelson-Siegel model. The technique of wavelet analysis allows investigating the interrelation of shocks in oil prices and the US yield curve along time and frequency domains, simultaneously. We report on low, medium, and high coherence zones, relative to the oil price movements and the changes in the three yield-curve factors. The low coherence intervals indicate the potential for the three latent factors to be used for creating diversification strategies capable of hedging adverse dynamics in the oil market, potentially workable through global crises. We document the variability of dynamic patterns observable for the US sovereign yield factors on per-type-of-shock basis, evidencing the potential role of the US sovereign debt investments for designing cross-asset hedge strategies for commodity and fixed-income markets.

ISSN

0254-5330

Publisher

Springer Science and Business Media LLC

First Page

1

Last Page

25

Disciplines

Business

Keywords

Yield-curve structural factors, Oil-demand shocks, Oil-supply shocks, Risk-driven shocks, Wavelet coherence phase-difference, Causality, Leads and lags, Global financial crisis, Covid-19, Diversification attributes, Hedge srategies

Indexed in Scopus

no

Open Access

yes

Open Access Type

Bronze: This publication is openly available on the publisher’s website but without an open license

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