Forecasting Stock-Market Tail Risk and Connectedness in Advanced Economies Over a Century: The Role of Gold-to-Silver and Gold-to-Platinum Price Ratios

Afees Salisu, Christian Pierdzioch, Rangan Gupta and David Gabauer

No 202161, Working Papers from University of Pretoria, Department of Economics

Abstract: We examine the predictive value of risk perceptions as measured in terms of the gold-to-silver and gold-to-platinum price ratios for stock-market tail risks and their connectedness in eight major industrialized economies using monthly data for the period 1916:02-2020:10 and 1968:01-2020:10, where we use four variants of the popular Conditional Autoregressive Value at Risk (CAViaR) framework to estimate the tail risks for both 1% and 5% VaRs. Our findings for the short sample period show that the gold-to-silver price ratio resembles the gold-to-platinum price ratios in that it is a useful proxy for global risk. Our findings for the long sample period show, despite some heterogeneity across economies, that the gold-to-silver price ratio often helps to out-of-sample forecast for both 1% and 5% stock market tail risks, particularly when a forecaster suffers a higher loss from underestimation of tail risks than from a corresponding overestimation of the same absolute size. We also find that using the gold-to-silver price ratio for forecasting the total connectedness of stock markets is beneficial for an investor who suffers a higher loss from an underestimation of total connectedness (i.e., an investor who otherwise would overestimate the benefits from portfolio diversification) than from a comparable overestimation.

Keywords: Stock markets; Tail risks; Connectedness; Gold-to-silver price ratio; Gold-to-platinum price ratio; Forecasting; Asymmetric loss (search for similar items in EconPapers)
JEL-codes: C22 C53 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2021-09
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Forecasting stock-market tail risk and connectedness in advanced economies over a century: The role of gold-to-silver and gold-to-platinum price ratios (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202161

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().