Modeling Exchange Rate and Industrial Commodity Volatility Transmissions

Shawkat Hammoudeh, Yuan Yuan and Michael McAleer
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Yuan Yuan: Lebow College of Business, Drexel University

No 96, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper examines the inclusion of the dollar/euro exchange rate together with important commodities in two different BEKK, or multivariate conditional covariance, models. Such inclusion increases the significant direct and indirect past shock and volatility effects on future volatility between the commodities, as compared with their effects in the all-commodity basic model (Model 1), which includes the highly-traded aluminum, copper, gold and oil. Model 2, which includes copper, gold, oil and exchange rate, displays more direct and indirect transmission than does Model 3, which replaces the business cycle-sensitive copper with the highly energy-intensive aluminum. Optimal portfolios should have more Euro than commodities, and more copper and gold than oil. The multivariate conditional volatility models reveal greater volatility spillovers than their univariate counterparts.

Keywords: multivariate GARCH; shocks; volatility; transmission; portfolio weights (search for similar items in EconPapers)
JEL-codes: C51 E27 Q43 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-02
New Economics Papers: this item is included in nep-ets and nep-ifn
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0096

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