Dynamic risk spillovers and portfolio risk management between precious metals and global foreign exchange markets

Walid Mensi, Shawkat Hammoudeh, Mobeen Ur Rehman, Alanoud Ali S. Al-Maadid and Sang Hoon Kang

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: This study examines portfolio management and risk spillovers between four major precious metals (gold, silver, palladium and platinum) and 20 important U.S. exchange markets. To this end, we employ the multivariate DECO-GARCH model and the spillover index developed by Diebold and Yilmaz (2014, 2016) to examine the spillovers between those metal prices and the exchange rates and design portfolios and hedging strategies using different risk measures. The results show evidence of weak average conditional equicorrelations among the considered markets over time, excluding the turbulent 2008–2010 period. Furthermore, the precious metals (excluding platinum) and the currencies (with the exception of the Australian, Brazilian, Denmark, Euro, Mexican, Norwegian, New Zealand and Swedish currencies) are net receivers of shocks. Finally, the four precious metals provide strong risk and downside risk reductions, underscoring the usefulness of including precious metals in a traditional foreign exchange-dominated portfolio.

Keywords: Precious metals; Currency markets; Spillovers; Hedging (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2020
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:ecofin:v:51:y:2020:i:c:s1062940819301615

DOI: 10.1016/j.najef.2019.101086

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