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Precious metals-exchange rate volatility transmissions and hedging strategies

  • Hammoudeh, Shawkat M.
  • Yuan, Yuan
  • McAleer, Michael
  • Thompson, Mark A.

This study examines the conditional volatility and correlation dependency and interdependency for the four major precious metals (i.e., gold, silver, platinum and palladium), while accounting for geopolitics within a multivariate system. The implications of the estimated results for portfolio designs and hedging strategies are also analyzed. The results for the four metals system show significant short-run and long-run dependencies and interdependencies to news and past volatility. Furthermore, these results become more pervasive when the exchange rate and federal funds rate are included. Monetary policy also has a differential impact on the precious metals and the exchange rate volatilities. Finally, the applications of the results show the optimal weights in a two-asset portfolio and the hedging ratios for long positions.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 19 (2010)
Issue (Month): 4 (October)
Pages: 633-647

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Handle: RePEc:eee:reveco:v:19:y:2010:i:4:p:633-647
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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