Precious metals-exchange rate volatility transmissions and hedging strategies

Shawkat M. Hammoudeh; Yuan Yuan; Michael McAleer; Mark A. Thompson

doi:10.1016/j.iref.2010.02.003

Precious metals-exchange rate volatility transmissions and hedging strategies

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

Research output: Contribution to journal › Article › peer-review

150 Scopus citations

Abstract

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.

Original language	English (US)
Pages (from-to)	633-647
Number of pages	15
Journal	International Review of Economics and Finance
Volume	19
Issue number	4
DOIs	https://doi.org/10.1016/j.iref.2010.02.003
State	Published - Oct 2010
Externally published	Yes

Keywords

Correlation
Dependency and interdependency
Shocks
Volatility

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.iref.2010.02.003

Cite this

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title = "Precious metals-exchange rate volatility transmissions and hedging strategies",

abstract = "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.",

keywords = "Correlation, Dependency and interdependency, Shocks, Volatility",

author = "Hammoudeh, {Shawkat M.} and Yuan Yuan and Michael McAleer and Thompson, {Mark A.}",

note = "Funding Information: The authors thank Kyongwook Choi and other participants of the 84th Western Economic Association International (WEAI) for helpful comments on an earlier version of this paper. Michael McAleer also wishes to acknowledge the financial support of the Australian Research Council and National Science Council, Taiwan . ",

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T1 - Precious metals-exchange rate volatility transmissions and hedging strategies

AU - Hammoudeh, Shawkat M.

AU - Yuan, Yuan

AU - McAleer, Michael

AU - Thompson, Mark A.

N1 - Funding Information: The authors thank Kyongwook Choi and other participants of the 84th Western Economic Association International (WEAI) for helpful comments on an earlier version of this paper. Michael McAleer also wishes to acknowledge the financial support of the Australian Research Council and National Science Council, Taiwan .

PY - 2010/10

Y1 - 2010/10

N2 - 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.

AB - 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.

KW - Correlation

KW - Dependency and interdependency

KW - Shocks

KW - Volatility

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Precious metals-exchange rate volatility transmissions and hedging strategies

Abstract

Keywords

ASJC Scopus subject areas

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