Oil and precious metals: Volatility transmission, hedging, and safe haven analysis from the Asian crisis to the COVID-19 crisis

Walid Mensi, Ramzi Nekhili, Xuan Vinh Vo and Sang Hoon Kang

Economic Analysis and Policy, 2021, vol. 71, issue C, 73-96

Abstract: This paper examines the volatility transmission between crude oil and four precious metals (i.e., gold, silver, platinum, and palladium) and investigates whether oil can be considered as a hedge or safe-haven asset against four precious metals. Our empirical analysis reveals several important findings. First, we determine that the volatility transmission was time-varying and that influence from the Asian crisis, the bursting of the dot-com bubble, the 2008 global financial crisis, the recent oil-price crash, and COVID-19 alternated between negative and positive values over the entire studied period. We further conclude that Brent oil is a diversifier and a weak safe haven for precious metals; and thus, that a combined portfolio composed of Brent-oil and precious-metals futures yields better hedging effectiveness. These findings indicate that oil futures are a useful investment that reduces downside risks and strengthens diversification benefits in portfolio risk management.

Keywords: Precious metals; Oil; Hedge; Safe haven; Asymmetric dynamic correlations (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:71:y:2021:i:c:p:73-96

DOI: 10.1016/j.eap.2021.04.009

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