The Price of Shelter - Downside Risk Reduction with Precious Metals

34 Pages Posted: 5 Apr 2016 Last revised: 21 Feb 2017

See all articles by Don Bredin

Don Bredin

University College Dublin (UCD) - Department of Banking & Finance

Thomas Conlon

University College Dublin

Valerio Potì

University College Dublin

Date Written: March 31, 2016

Abstract

Investor aversion to extreme losses may motivate them to seek out investments perceived to function as a safe haven during times of crisis. In this study, we consider the potential for precious metals to mitigate downside risk when combined with equities, and evaluate the impact on portfolio risk-adjusted returns. Each of gold, silver and platinum are found to contribute to downside risk reduction at short horizons, but diversifi cation into silver and platinum may result in increased long horizon portfolio risk. The price of sheltering an equity portfolio from downside risk is a relative reduction in portfolio risk-adjusted returns. Variance and kurtosis properties of precious metals are identi fied as marginal contributors to downside risk reduction. Futures markets on precious metals are also shown to present an interesting and viable diversifi cation alternative to physical metals.

Keywords: Downside Risk, Precious Metals, Horizon, Safe Haven, Value-at-Risk

JEL Classification: G00, G10, G11, G12

Suggested Citation

Bredin, Don and Conlon, Thomas and Potì, Valerio, The Price of Shelter - Downside Risk Reduction with Precious Metals (March 31, 2016). Available at SSRN: https://ssrn.com/abstract=2756961 or http://dx.doi.org/10.2139/ssrn.2756961

Don Bredin

University College Dublin (UCD) - Department of Banking & Finance ( email )

School of Business
Blackrock, Co. Dublin, 4
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff_bredin.html

Thomas Conlon (Contact Author)

University College Dublin ( email )

Smurfit Graduate Business School
Blackrock
Co. Dublin, n/a
Ireland

HOME PAGE: http://www.ucd.ie/bankingfinance/staff/drthomasconlon/

Valerio Potì

University College Dublin ( email )

M. Smurfit School of Business
Carysfort Avenue, Blackrock
Dublin, Co Dublin
Ireland

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