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Portfolio management and dependencies among precious metal markets: Evidence from a Copula quantile-on-quantile approach

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  • Al-Yahyaee, Khamis Hamed
  • Mensi, Walid
  • Maitra, Debasish
  • Al-Jarrah, Idries Mohammad Wanas

Abstract

This study examines the dependence structure among four major precious metal markets: gold, palladium, platinum, and silver. Using the novel Copula Quantile-on-Quantile Regression (C-QQR) approach of Sim (2016), we show that precious metals share a systemic relationship despite their different demand-supply interplays, applications, and the macroeconomic factors, which influence their values. Our results also suggest that correlations among markets do not remain constant over time. Furthermore, we identify the quantiles of returns for two metals where maximum benefits of negative correlations can be obtained to enhance portfolio diversification. This knowledge provides an opportunity for hedgers to decide when they should avoid going long or short on a particular metal. Finally, we find that our approach determines optimal portfolio weights that can reduce risk in metals markets more efficiently than traditional, conditional covariance-based approaches.

Suggested Citation

  • Al-Yahyaee, Khamis Hamed & Mensi, Walid & Maitra, Debasish & Al-Jarrah, Idries Mohammad Wanas, 2019. "Portfolio management and dependencies among precious metal markets: Evidence from a Copula quantile-on-quantile approach," Resources Policy, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:jrpoli:v:64:y:2019:i:c:s0301420719303496
    DOI: 10.1016/j.resourpol.2019.101529
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    Cited by:

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    3. Huilian Huang & Tao Xiong, 2023. "A good hedge or safe haven? The hedging ability of China's commodity futures market under extreme market conditions," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(7), pages 968-1035, July.
    4. Jose Arreola Hernandez & Sang Hoon Kang & Seong-Min Yoon, 2022. "Spillovers and portfolio optimization of precious metals and global/regional equity markets," Applied Economics, Taylor & Francis Journals, vol. 54(20), pages 2320-2342, April.
    5. Chen, Jinyu & Wang, Yilin & Ren, Xiaohang, 2023. "Asymmetric effect of financial stress on China’s precious metals market: Evidence from a quantile-on-quantile regression," Research in International Business and Finance, Elsevier, vol. 64(C).
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    9. Mensi, Walid & Hernandez, Jose Arroeola & Yoon, Seong-Min & Vo, Xuan Vinh & Kang, Sang Hoon, 2021. "Spillovers and connectedness between major precious metals and major currency markets: The role of frequency factor," International Review of Financial Analysis, Elsevier, vol. 74(C).

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    More about this item

    Keywords

    Precious metal markets; Tail dependence; Hedging; Copula quantile-on-quantile;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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