Downside Uncertainty Shocks in the Oil and Gold Markets

39 Pages Posted: 7 Apr 2020

See all articles by Tai-Yong Roh

Tai-Yong Roh

Liaoning University

Suk Joon Byun

Graduate School of Finance

Yahua Xu

Central University of Finance and Economics (CUFE) - China Economics and Management Academy

Date Written: March 13, 2020

Abstract

We construct downside variance risk premiums from the crude oil and gold option data and use them as proxies for market downside uncertainty risks. We find that these downside variance risk premiums contain commodity market specifc pricing information. Further- more, the gold market's exposure to downside uncertainty shocks is cross-sectionally priced in the stock market while its crude oil market counterpart is not. This implies that the downside uncertainty for the gold market may be a key state variable representing investment opportunity sets under the Intertemporal Capital Asset Pricing Model (ICAPM).

Keywords: Commodity markets; Downside uncertainty shocks; Downside variance risk premiums; Pricing implications

JEL Classification: G1; C5; Q3; Q4

Suggested Citation

Roh, Tai-Yong and Byun, Suk Joon and Xu, Yahua, Downside Uncertainty Shocks in the Oil and Gold Markets (March 13, 2020). Available at SSRN: https://ssrn.com/abstract=3553676 or http://dx.doi.org/10.2139/ssrn.3553676

Tai-Yong Roh

Liaoning University ( email )

Shenyang, Liaoning
China

Suk Joon Byun

Graduate School of Finance ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

Yahua Xu (Contact Author)

Central University of Finance and Economics (CUFE) - China Economics and Management Academy ( email )

NO.39 South College Road
Haidian District
Beijing, 100081
China

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