Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies

Shawkat Hammoudeh, Yun Yuan, Michael McAleer and Mark Thompson

No EI 2009-38, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: This study examines the conditional volatility and correlation dependency and interdependency for the four major precious metals (that is, gold, silver, platinum and palladium), while accounting for geopolitics within a multivariate system. The implications of the estimated results for portfolio designs and hedging strategies are also analyzed. The results for the four metals system show significant short-run and long-run dependencies and interdependencies to news and past volatility. These results have become more pervasive when the exchange rate and FFR are included. Monetary policy also has a differential impact on the precious metals and the exchange rate volatilities. Finally, the applications of the results show the optimal weights in a two-asset portfolio and the hedging ratios for long positions.

Keywords: correlation; dependency; exchange rates; hedging; interdependency; multivariate; precious metals; shocks; volatility (search for similar items in EconPapers)
JEL-codes: C32 G10 (search for similar items in EconPapers)
Date: 2009-11-24
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Citations: View citations in EconPapers (34)

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Related works:
Journal Article: Precious metals-exchange rate volatility transmissions and hedging strategies (2010)
Working Paper: Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies (2009)
Working Paper: Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies (2009)
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