Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies
This study examines the conditional volatility and correlation dependency and interdependency for the four major precious metals (that is, 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. These results have become more pervasive when the exchange rate and FFR 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.
|Date of creation:||Oct 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033|
Web page: http://www.carf.e.u-tokyo.ac.jp/english/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Seung‐Ryong Yang & B. Wade Brorsen, 1993. "Nonlinear dynamics of daily futures prices: Conditional heteroskedasticity or chaos?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(2), pages 175-191, 04.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Ling, Shiqing & McAleer, Michael, 2003.
"Asymptotic Theory For A Vector Arma-Garch Model,"
Cambridge University Press, vol. 19(02), pages 280-310, April.
- G McMillan, David, 2005. "Time-varying hedge ratios for non-ferrous metals prices," Resources Policy, Elsevier, vol. 30(3), pages 186-193, September.
- McAleer, Michael, 2005. "Automated Inference And Learning In Modeling Financial Volatility," Econometric Theory, Cambridge University Press, vol. 21(01), pages 232-261, February.
- Lien, Donald, 2005. "The use and abuse of the hedging effectiveness measure," International Review of Financial Analysis, Elsevier, vol. 14(2), pages 277-282.
- Choudhry, Taufiq, 2009. "Short-run deviations and time-varying hedge ratios: Evidence from agricultural futures markets," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 58-65, March.
- Massimiliano Caporin & Michael McAleer, 2009.
"Do We Really Need Both BEKK and DCC? A Tale of Two Covariance Models,"
CARF-F-156, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- Massimiliano Caporin & Michael McAleer, 2009. "Do We Really Need Both BEKK and DCC? A Tale of Two Covariance Models," Documentos de Trabajo del ICAE 0904, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
- Massimiliano Caporin & Michael McAleer, 2009. "Do We Really Need Both BEKK and DCC? A Tale of Two Covariance Models," CIRJE F-Series CIRJE-F-638, CIRJE, Faculty of Economics, University of Tokyo.
- Lien, Donald & Shrestha, Keshab, 2008. "Hedging effectiveness comparisons: A note," International Review of Economics & Finance, Elsevier, vol. 17(3), pages 391-396.
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Kyrtsou, Catherine & Labys, Walter C., 2007. "Detecting positive feedback in multivariate time series: The case of metal prices and US inflation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 377(1), pages 227-229.
- Choudhry, Taufiq, 2004. "The hedging effectiveness of constant and time-varying hedge ratios using three Pacific Basin stock futures," International Review of Economics & Finance, Elsevier, vol. 13(4), pages 371-385.
- Plourde, André & Watkins, G. C., 1998. "Crude oil prices between 1985 and 1994: how volatile in relation to other commodities?," Resource and Energy Economics, Elsevier, vol. 20(3), pages 245-262, September.
- Tully, Edel & Lucey, Brian M., 2007. "A power GARCH examination of the gold market," Research in International Business and Finance, Elsevier, vol. 21(2), pages 316-325, June.
- Adrangi, Bahram & Chatrath, Arjun, 2002. "The Dynamics of Palladium and Platinum Prices," Computational Economics, Society for Computational Economics, vol. 19(2), pages 179-95, April.
- Lien, Donald, 2009. "A note on the hedging effectiveness of GARCH models," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 110-112, January.
- Demirer, Riza & Lien, Donald, 2003. "Downside risk for short and long hedgers," International Review of Economics & Finance, Elsevier, vol. 12(1), pages 25-44.
- Jonathan A. Batten & Brian M. Lucey, 2007.
"Volatility in the Gold Futures Market,"
The Institute for International Integration Studies Discussion Paper Series
- Michael McKenzie & Heather Mitchell & Robert Brooks & Robert Faff, 2001.
"Power ARCH modelling of commodity futures data on the London Metal Exchange,"
The European Journal of Finance,
Taylor & Francis Journals, vol. 7(1), pages 22-38.
- McKenzie, M. & Michell, H. & Brooks, R.D. & Faff, R.W., 1998. "Power ARCH Modelling of Commodity Futures Data on the London Metal Exchange," Papers 98-3, Melbourne - Centre in Finance.
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
- Hammoudeh, Shawkat & Yuan, Yuan, 2008. "Metal volatility in presence of oil and interest rate shocks," Energy Economics, Elsevier, vol. 30(2), pages 606-620, March.
- Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(04), pages 535-551, December.
- Hassan, Syed Aun & Malik, Farooq, 2007. "Multivariate GARCH modeling of sector volatility transmission," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(3), pages 470-480, July.
- Jeantheau, Thierry, 1998. "Strong Consistency Of Estimators For Multivariate Arch Models," Econometric Theory, Cambridge University Press, vol. 14(01), pages 70-86, February.
- Watkins, Clinton & McAleer, Michael, 2008. "How has volatility in metals markets changed?," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 78(2), pages 237-249.
- Westerhoff, Frank & Reitz, Stefan, 2005. "Commodity price dynamics and the nonlinear market impact of technical traders: empirical evidence for the US corn market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 349(3), pages 641-648.
When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.