Dynamics and causality in distribution between spot and future precious metals: A copula approach

Rihem Braham, Christian de Peretti () and Lotfi Belkacem
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Rihem Braham: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Christian de Peretti: ECL - École Centrale de Lyon - Université de Lyon, LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Lotfi Belkacem: IHEC Sousse - IHEC, Université de Sousse

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Abstract: This paper examines the dependence structure and the Granger causality in distribution (GCD) between spot and future returns of precious metals (gold, silver, and platinum) via copula modelling. This study considers the evidence on real precious metals returns from Jan 2, 2002 to Jan 13, 2017. Throughout literature, the use of copula in precious metals markets is still limited. Indeed, unlike linear methods, using a copula-based approach has several attractive advantages. Our empirical findings show the following: (1) Using static and dynamic copulas, we find that the dependence between the spot and the future returns of precious metals is relatively strong and time varying with a strong tail dependence for all pairs (3) Using independence test based on the empirical copula, we detect a unidirectional GCD from future to spot precious metals market during normal times. This results means that past information from the future returns improve forecasts of spot returns. However, the causal relationship seems to be bidirectional in the case of gold and platinum during crisis periods. Our findings are important to investors for investigating hedging strategies since the efficacy of a hedging strategy is dependent on the price discovery mechanism. Hence, they should take the above findings into consideration to make optimal decisions, especially during periods of marked instability.

Date: 2020-06
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Published in Resources Policy, 2020, 66, pp.101645. ⟨10.1016/j.ribaf.2020.101184⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04875511

DOI: 10.1016/j.ribaf.2020.101184

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