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Identifying the multiscale financial contagion in precious metal markets

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  • Wang, Xinya
  • Liu, Huifang
  • Huang, Shupei
  • Lucey, Brian

Abstract

Precious metals matter to investors for their risk aversion and diversification potential. The aim of this paper is to examine the financial contagion from January 2000 to May 2018 in precious metal markets (gold, silver, platinum, and palladium) on different time scales by combining the wavelet-based approach and the GARCH-EVT-based value-at-risk (VaR) model. The results show that financial contagion existed in these four precious metal markets at all time scales. Gold and silver had the stronger contagion impact, and they had a unidirectional contagion effect on the other three precious metal markets at all time scales. Platinum had a relatively weak contagion impact, and there was not a contagion effect from platinum to gold and silver at some time scales. Palladium had the weakest contagion impact on other precious metals for most time scales, especially on gold. Moreover, a bidirectional financial contagion existed in all the precious markets when the time scales are 16 days and 32 days. However, no evidence of the financial contagion among these four precious metal markets during the extreme risk period was found for all time scales. These results also have potentially important implications in terms of risk management for portfolios that include precious metals.

Suggested Citation

  • Wang, Xinya & Liu, Huifang & Huang, Shupei & Lucey, Brian, 2019. "Identifying the multiscale financial contagion in precious metal markets," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 209-219.
    • Handle: RePEc:eee:finana:v:63:y:2019:i:c:p:209-219
    DOI: 10.1016/j.irfa.2019.04.003
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