Dynamic Linkages of Energy Commodities with Bullion and Metal Market: Evidence of Portfolio Hedging

Shegorika Rajwani, Aviral Kumar Tiwar, Miklesh Prasad Yadav and Sakshi Sharma
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Shegorika Rajwani: Indian Institute of Foreign Trade
Aviral Kumar Tiwar: Indian Institute of Management Bodh Gaya
Miklesh Prasad Yadav: Indian Institute of Foreign Trade, Kakinada Campus
Sakshi Sharma: Jawaharlal Nehru University

American Business Review, 2023, vol. 26, issue 1, 148-179

Abstract: This paper examines the dynamic linkages of volatility of energy commodities with bullion and the metal market. The proxies of energy commodities are crude oil and natural gas; bullion markets are Gold, silver and platinum and metal markets are copper and zinc. We collect daily data extending from March 18, 2010, to January 15, 2021, a period for about 12 years and employ Granger causality, Dynamic Conditional Correlation (DCC), Diebold Yilmaz (2012), Baruník & Křehlík (2018), and Network analysis for the purpose of examining spillover effect in the data considered. It is observed that there are short-run dynamic spillovers from energy (crude oil) to metal (copper) while long-run linkage is witnessed among all the constituent series. Further, Baruník & Křehlík (2018) test reveals that the total connectedness of the seven data series under study are found to be higher in frequency 2 (6 days to 15 days) than in the short run and long run. Referring to the network analysis, negative correlations are found between each pair of indices considered, i.e., Gold, silver, platinum, zinc, copper with crude oil while positive correlation is witnessed between Gold and silver. In addition, we determine portfolio hedge ratios and portfolio weights for the investors and portfolio managers. It is found that the Crude /Zinc pair had the most expensive optimal hedge ratio, while Crude/Gold had the least expensive hedging.

Keywords: Dynamic Linkages; Energy Commodity; Bullion Market; Metal Market; Portfolio Hedging (search for similar items in EconPapers)
JEL-codes: C12 C32 G15 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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