Precious metals-exchange rate volatility transmissions and hedging strategies

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

Research output: Contribution to journalArticle

113 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 languageEnglish (US)
Pages (from-to)633-647
Number of pages15
JournalInternational Review of Economics and Finance
Volume19
Issue number4
DOIs
StatePublished - Oct 1 2010
Externally publishedYes

Keywords

  • Correlation
  • Dependency and interdependency
  • Shocks
  • Volatility

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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