Exchange Rate and Industrial Commodity Volatility Transmissions and Hedging Strategies

Shawkat M. Hammoudeh, Yuan Yuan and Michael McAleer
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Shawkat M. Hammoudeh: Lebow College of Business, Drexel University
Yuan Yuan: Lebow College of Business, Drexel University

No CIRJE-F-668, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper examines the inclusion of the dollar/euro exchange rate together with important commodities in two different BEKK, or multivariate conditional covariance, models. Such inclusion increases the significant direct and indirect past shock and volatility effects on future volatility between the commodities, as compared with their effects in the all-commodity basic model (Model 1), which includes the highly-traded aluminum, copper, gold and oil. Model 2, which includes copper, gold, oil and exchange rate, displays more direct and indirect transmission than does Model 3, which replaces the business cycle-sensitive copper with the highly energy-intensive aluminum. Optimal portfolios should have more Euro than commodities, and more copper and gold than oil. The multivariate conditional volatility models reveal greater volatility spillovers than their univariate counterparts.

New Economics Papers: this item is included in nep-ifn and nep-pke
Date: 2009-09

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Persistent link: http://EconPapers.repec.org/RePEc:tky:fseres:2009cf668

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