Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies

Shawkat Hammoudeh, Yuan Yuan and Michael McAleer
Additional contact information
Yuan Yuan: Lebow College of Business, Drexel University

No 751, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper examines volatility, volatility spillovers, optimal portfolio weights and hedging for systems that include the dollar/euro exchange rate together with four important and highly traded commodities - aluminum, copper, gold and oil - by utilizing four 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. The model that includes copper displays more direct and indirect transmissions than the one that includes aluminum which displays the high interactions with oil. Optimal portfolio weights suggest that investors should hold more of aluminum, copper and gold and less of oil in those portfolios. Hedging ratios indicate that the most effective way of hedging long commodity and euro positions is shorting them with oil positions.

Keywords: MGARCH; shocks; volatility; transmission; asymmetries; hedging (search for similar items in EconPapers)
JEL-codes: C51 E27 Q43 (search for similar items in EconPapers)
Pages: 53pages
Date: 2010-12
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (3)

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http://www.kier.kyoto-u.ac.jp/DP/DP751.pdf (application/pdf)

Related works:
Working Paper: Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies (2010)
Working Paper: Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies (2010)
Working Paper: Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies (2010)
Working Paper: Exchange Rate and Industrial Commodity Volatility Transmissions, Asymmetries and Hedging Strategies (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:751

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