Conditional Variance Dynamics of Gold and Other Precious Metals - Forecast Comparison with Intra-Day Data

Posted: 28 Jul 2016 Last revised: 11 Jan 2017

See all articles by Tony Klein

Tony Klein

Queen's University Belfast - Queen's Management School

Date Written: July 14, 2016

Abstract

The conditional variance of returns of Gold, Silver, Palladium, and Platinum is modeled incorporating GARCH, APARCH, FIGARCH, and FIAPARCH for different underlying distributions. These returns are found to be non-normal. The results suggest that Gold and Silver feature different econometric properties in their dynamics than Palladium and Platinum. While Gold and Silver are dominated by asymmetric effects, Palladium and Platinum feature a preponderant long memory. This behavior is verified by taking into account recent shocks like the Volkswagen Diesel scandal or the 'Brexit' poll. The forecasting comparison of these models for one, five, and 20 day-ahead forecasts is compared with two different proxies for the daily realized variance -- squared daily returns and a proxy based on intra-day data. It is found that incorporating a more realistic measure for the realized volatility, the loss functions are significantly reduced and the decision on the best performing model changes. For Gold and Silver, APARCH and partly FIAPARCH are found to be the best performing.

Keywords: Precious Metals, Long Memory, Asymmetry, Conditional Variance, Intra-Day Data

JEL Classification: C18, C52, Q02

Suggested Citation

Klein, Tony, Conditional Variance Dynamics of Gold and Other Precious Metals - Forecast Comparison with Intra-Day Data (July 14, 2016). Available at SSRN: https://ssrn.com/abstract=2815326 or http://dx.doi.org/10.2139/ssrn.2815326

Tony Klein (Contact Author)

Queen's University Belfast - Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

HOME PAGE: http://www.tony-klein.info

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