Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies
This paper examines the inclusion of the dollar/euro exchange rate together with four important and highly traded commodities - aluminum, copper, gold and oil- in symmetric and asymmetric multivariate GARCH and DCC models. The inclusion of exchange rate increases the significant direct and indirect past shock and volatility effects on future volatility between the commodities in all the models. Model 2, which includes the business cycle industrial metal copper and not aluminum, displays more direct and indirect transmissions than does Model 3, which replaces the business cycle-sensitive copper with the highly energy-intensive aluminum. The asymmetric effects are the greatest in Model 3 because of the high interactions between oil and aluminum. Optimal portfolios should have more euro currency than commodities, and more copper and gold than oil.
|Keywords||MGARCH, asymmetries, hedging, shocks, transmission, volatility|
|Publisher||Erasmus School of Economics (ESE)|
Hammoudeh, S.M., S.M., Yuan, Y., Y., & McAleer, M.J.. (2010). Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies (No. EI 2010-35). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–57). Erasmus School of Economics (ESE). Retrieved from http://hdl.handle.net/1765/19449