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.
|Keywords||correlation, dependency, exchange rates, hedging, interdependency, multivariate, precious metals, shocks, volatility|
|JEL||Time-Series Models; Dynamic Quantile Regressions (jel C32), General Financial Markets: General (jel G10)|
|Publisher||Erasmus School of Economics|
|Series||Econometric Institute Research Papers|
|Journal||Report / Econometric Institute, Erasmus University Rotterdam|
Hammoudeh, S.M, Yuan, Y, McAleer, M.J, & Thompson, M.A. (2009). Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies (No. EI 2009-38). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–43). Erasmus School of Economics. Retrieved from http://hdl.handle.net/1765/17308