Transmission of shocks between bond and oil markets Amir Saadaoui, Kais Saidi and Mohamed Kriaa Faculty of Economics and Management of Sfax, University of Sfax, Sfax, Tunisia Abstract Purpose – This paper aims at looking into the transmission of shocks between bond and oil markets using a bivariate GARCH (BEKK and DCC) model. As lots of financial assets have been exchanged due to these index returns, it is essential for financial market participants to figure out the mechanism of volatility transmission through time and via these series for the purpose of taking optimal decisions of portfolio allocation. The outcomes drawn reveal an important volatility transmission between sovereign bond and oil indices, with great sensitivity during and after the subprime crisis period. Design/methodology/approach – In this context, we propose our hypotheses. Indeed, our study aims to see whether the financial crisis has been responsible for the sharp drop in oil prices since October 2008. To this end, we suggest, in this paper, the empirical study of the shock transmission between the bond and oil markets, using BEK-GARCH and DCC models. To our knowledge, this is the first document using the BEKK-GARCH and the DCC models in studying the shock transmission between a sovereign bond and oil indices. Findings – We have noticed that in the event of a disruption in the bond market, oil prices respond to these shocks in the short term. It has also been emphasized, however, that this relationship has exacerbated if the period has extended. This makes us conclude that the financial market situation affects the oil price only throughout the crisis period; and that this situation is causally significant only in the event of a severe crisis, such as those of subprime and sovereign debt. Originality/value – The global financial system has been going through an acute crisis since mid-2007. This crisis, initially occurred only in the US real estate market, progressively affects the global financial system, and is now becoming a general economic crisis. The objective of this work is to analyze the effects of the current financial market disturbance on oil prices based on econometric models in order to promote the proper functioning of this study. Keywords Volatility, Bond returns, Oil prices, Bond market, Bivariate GARCH Paper type Research paper 1. Introduction The dynamic relationship and transmission in oil markets are of much interest to the financial community with the growing trend toward worldwide financial globalization. The relationship in daily activity in financial markets gives general economic news. In fact, the world oil price has been one of the most frequently cited reasons for fluctuations in securities prices. Rising oil prices have been criticized for falling stock prices, the weakness of the dollar exchange rate, and in a certain way, the fluctuations in government bond returns. Compared to other periods of rising oil prices, the response of the bond market has been limited. Expanding this issue in the context of oil and bond markets is also substantial as empirical results provide insight into the creation of accurate asset pricing models and accurate forecasts of the volatility of the two markets. Although several studies in the literature have investigated the interactions between oil prices and the bond market Moses et al. (2017); Park and Ratti (2008); Filis et al. (2011); Basher et al. (2012) very few researchers have been interested in the issue of return and volatility Shock transmissions in bond and oil markets JEL Classification — F3, G1 The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/0307-4358.htm Received 8 November 2019 Revised 12 March 2020 16 April 2020 Accepted 17 April 2020 Managerial Finance © Emerald Publishing Limited 0307-4358 DOI 10.1108/MF-11-2019-0554