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Hedging U.S. metals & mining Industry's credit risk with industrial and precious metals

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  • Umar, Zaghum
  • Hussain Shahzad, Syed Jawad
  • Kenourgios, Dimitris

Abstract

This study examines the conditional correlation and the resulting optimal hedge ratios between the Credit Default Swap (CDS) spreads of the U.S. metal and mining industries, and the prices of copper, platinum, silver and gold using the daily date from December 14, 2007 to August 18, 2018. It compares volatility and conditional correlation of the CDSs and the metal prices by employing multivariate GARCH family models which capture distinct characteristics of financial time series. It utilizes rolling window estimation techniques and constructs the one-step-ahead out-of-sample forecasts for the dynamic conditional correlations and thereafter the optimal hedge ratios. In general, our results show that copper provides the best possible hedge for dealing with the U.S. metals and mining industries’ credit risks. Our results are robust under alternate model specifications, choice of model refits and distributional assumptions.

Suggested Citation

  • Umar, Zaghum & Hussain Shahzad, Syed Jawad & Kenourgios, Dimitris, 2019. "Hedging U.S. metals & mining Industry's credit risk with industrial and precious metals," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    • Handle: RePEc:eee:jrpoli:v:63:y:2019:i:c:9
    DOI: 10.1016/j.resourpol.2019.101472
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    8. Zainudin, Ahmad Danial & Mohamad, Azhar, 2021. "Cross hedging with stock index futures," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 128-144.
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    14. Umar, Zaghum & Gubareva, Mariya & Tran, Dang Khoa & Teplova, Tamara, 2021. "Impact of the Covid-19 induced panic on the Environmental, Social and Governance leaders equity volatility: A time-frequency analysis," Research in International Business and Finance, Elsevier, vol. 58(C).
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    20. Ghazani, Majid Mirzaee & Khosravi, Reza & Caporin, Massimiliano, 2023. "Analyzing interconnection among selected commodities in the 2008 global financial crisis and the COVID-19 pandemic," Resources Policy, Elsevier, vol. 80(C).
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    More about this item

    Keywords

    Credit risk; Metal and mining industry; Precious metals; Hedging;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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