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Risk spillovers and portfolio management between precious metal and BRICS stock markets

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  • Jiang, Yonghong
  • Fu, Yuyuan
  • Ruan, Weihua

Abstract

Using the daily dataset from January 3, 2001 to December 28, 2017, we explore the risk spillovers between the BRICS stock markets and precious metal markets by means of the DCC-GJR-GARCH model. The dynamic volatility linkages between stock and precious metal sectors are long-persistence and fluctuate greatly during the sample period. In some sample period, the conditional correlation is negative, indicating that investors may hedge their risks from a diversified portfolio. As for the portfolio implications, both the value of optimal weight and hedge ratio is high with severe fluctuations for each market pairs, meaning that portfolio managers should adjust their investment structure based on different market conditions. After the global financial crisis, the hedging capability of precious metal sectors turns different among BRICS stock markets. Precious metal can hedge the risks of India and China stock markets more effective but not in Brazil and Russia markets. Our results may have some implications for portfolio managers and investors to reduce their risks.

Suggested Citation

  • Jiang, Yonghong & Fu, Yuyuan & Ruan, Weihua, 2019. "Risk spillovers and portfolio management between precious metal and BRICS stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 534(C).
    • Handle: RePEc:eee:phsmap:v:534:y:2019:i:c:s0378437119306016
    DOI: 10.1016/j.physa.2019.04.229
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    More about this item

    Keywords

    Risk spillovers; Precious metal markets; BRICS stock markets; DCC-DJR-GARCH model; Portfolio implications;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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