Causal nexus between crude oil and US corporate bonds.

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Publisher: Elsevier Advanced Technology Publications
Document Type: Report; Brief article
Length: 273 words

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Keywords Oil price volatility; High-yield bonds; Investment-grade bonds; Energy bond index; Frequency domain causality; Bayesian model averaging Highlights * Granger causal flow from implied oil volatility to US high-yield and investment-grade corporate bonds. * Causality differs over investment time horizons with lasting effect on high-yield bonds. * Oil price crash of mid-2014 intensifies the causal effect. * US default risk and credit spread heterogeneously drive these causalities. 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. Author Affiliation: (a) Montpellier Business School, University of Montpellier, Montpellier Research in Management, Montpellier, France (b) South Ural State University, Russia (c) Adnan Kassar School of Business, Lebanese American University, Lebanon (d) Independent Researcher * Corresponding author at: Montpellier Business School, University of Montpellier, Montpellier Research in Management, Montpellier, France. Article History: Received 4 December 2019; Revised 26 March 2021; Accepted 8 April 2021 Byline: Syed Jawad Hussain Shahzad [j.syed@montpellier-bs.com] (a,b), Elie Bouri [elie.elbouri@lau.edu.lb] (c), Jose Areola Hernandez [jose.arreolah.finance@gmail.com] (d), David Roubaud [d.roubaud@montpellier-bs.com] (a)

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Gale Document Number: GALE|A663230342