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Dynamic correlation of precious metals and flight-to-quality in developed markets

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  • Klein, Tony

Abstract

A flexible modification of the DCC model that accounts for asymmetry and long memory in variance is proposed. This model is applied on precious metals and indexes of developed countries to revisit the flight-to-quality phenomenon. Market turmoil and shocks are covered by asset-specific variance models. I identify Gold and partly Silver as safe haven while this status seems to be dissipating in the recent years. Interestingly, Platinum shows signs of a surrogate safe haven. The practical difference between the standard DCC and the model proposed herein is significant, which stems from a more realistic variance modeling within the framework.

Suggested Citation

  • Klein, Tony, 2017. "Dynamic correlation of precious metals and flight-to-quality in developed markets," Finance Research Letters, Elsevier, vol. 23(C), pages 283-290.
    • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:283-290
    DOI: 10.1016/j.frl.2017.05.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic correlations; Precious metals; Stock markets; Asymmetry; Long memory;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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