Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies
AbstractThis paper examines the inclusion of the dollar/euro exchange rate together with four important and highly traded commodities - aluminum, copper, gold and oil- in symmetric and asymmetric multivariate GARCH and DCC models. The inclusion of exchange rate increases the significant direct and indirect past shock and volatility effects on future volatility between the commodities in all the models. Model 2, which includes the business cycle industrial metal copper and not aluminum, displays more direct and indirect transmissions than does Model 3, which replaces the business cycle-sensitive copper with the highly energy-intensive aluminum. The asymmetric effects are the greatest in Model 3 because of the high interactions between oil and aluminum. Optimal portfolios should have more euro currency than commodities, and more copper and gold than oil.
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Bibliographic InfoPaper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-218.
Length: 54 pages
Date of creation: May 2010
Date of revision:
Other versions of this item:
- Shawkat M. Hammoudeh & Yuan Yuan & Michael McAleer, 2010. "Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies," CIRJE F-Series CIRJE-F-741, CIRJE, Faculty of Economics, University of Tokyo.
- Hammoudeh, S.M. & Yuan, Y. & McAleer, M.J., 2010. "Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies," Econometric Institute Research Papers EI 2010-35, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Shawkat M. Hammoudeh & Yuan Yuan & Michael McAleer, 2010. "Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies," KIER Working Papers 751, Kyoto University, Institute of Economic Research.
- Shawkat M.Hammoudeh & Yuan Yuan & Michael McAleer, 2010. "Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies," Working Papers in Economics 10/33, University of Canterbury, Department of Economics and Finance.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
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