A0871
Title: The impact of oil price shocks in the corporate bond market
Authors: Liana Nersisyan - UCLouvain (Belgium) [presenting]
Leonardo Iania - UCLouvain (Belgium)
Marco Lyrio - Legacy Capital (Brazil)
Abstract: The aim is to study the price of risk associated with oil price shocks on corporate bond risk premia. Oil price shocks are identified by using a structural vector autoregressive (SVAR) model of the global market for crude oil. These identified structural shocks - including oil supply, oil consumption demand, oil inventory demand, and global economic activity shocks - are then used as unspanned factors in a multi-market, single-pricing kernel framework. In the model, the first market represents a risk-free benchmark, while the second and third markets are represented by the yield curves on corporate bond indices of different rating classes (A and BBB). The analysis begins with predictive regressions of one-year holding period excess return of a corporate bond with different maturities on the first three principal components of zero-coupon yields of corporate bonds and oil-related macro factors. Preliminary findings showed that the impact of oil price shocks is stronger for lower-rated bonds, which suggests increased vulnerability in the firms with weaker credit profiles. Further empirical analysis is ongoing to deepen the understanding of the effects of the specific shocks and to refine the robustness of these results.
