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Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies

  • Hammoudeh, S.M.
  • Yuan, Y.
  • McAleer, M.J.
  • Thompson, M.A.

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.

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File URL: http://repub.eur.nl/pub/17308/EI2009-38.pdf
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Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2009-38.

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Date of creation: 24 Nov 2009
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Handle: RePEc:ems:eureir:17308
Contact details of provider: Postal: Postbus 1738, 3000 DR Rotterdam
Phone: 31 10 4081111
Web page: http://www.eur.nl/ese

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