Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies

41 Pages Posted: 31 Oct 2009

See all articles by Shawkat M. Hammoudeh

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Yuan Yuan

affiliation not provided to SSRN

Mark A. Thompson

Texas Tech University - Rawls College of Business

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Date Written: October 28, 2009

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: Multivariate, shocks, volatility, correlation, dependency, interdependency, precious metals, exchange rates, hedging

JEL Classification: C32, G10

Suggested Citation

Hammoudeh, Shawkat M. and Yuan, Yuan and Thompson, Mark A. and McAleer, Michael, Precious Metals-Exchange Rate Volatility Transmissions and Hedging Strategies (October 28, 2009). Available at SSRN: https://ssrn.com/abstract=1495748 or http://dx.doi.org/10.2139/ssrn.1495748

Shawkat M. Hammoudeh

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

Yuan Yuan

affiliation not provided to SSRN

Mark A. Thompson

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

Michael McAleer (Contact Author)

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

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