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Quantile dependencies and connectedness between stock and precious metals markets

Author

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  • Jain, Prachi
  • Maitra, Debasish
  • McIver, Ron P.
  • Kang, Sang Hoon

Abstract

The paper examines the frequency-based interlinkages between stock indices and precious metals at extreme and median quantiles. It employs the quantile cross-spectral approach (Baruník and Kley, 2019) and the novel frequency quantile connectedness analysis (Chatziantoniou et al., 2021) to a sample of stocks and precious metals returns. The results show that the interdependence between equity indices and precious metals markets is contingent on the state of the market (bear, bull, or normal) and the horizon of frequency domains. Of all precious metals, the diversification benefits from gold, followed by silver, are consistently the highest for SP500 and STOXX50 and the least with palladium in most cases. The same holds when we investigate the diversification potential of precious metals for industrial sectors in the US and UK. A quantile frequency connectedness approach reveals that the diversification potential of precious metals diminishes in the long frequency horizon as coherence with stock indices becomes highly positive. The connectedness between stock indices and precious metals is high during market extremities but dampens as the market attains stability. At the same time, connectedness increases during periods of financial turmoil across all frequencies. We also document a change in the diversification role of precious metals during COVID-19.

Suggested Citation

  • Jain, Prachi & Maitra, Debasish & McIver, Ron P. & Kang, Sang Hoon, 2023. "Quantile dependencies and connectedness between stock and precious metals markets," Journal of Commodity Markets, Elsevier, vol. 30(C).
    • Handle: RePEc:eee:jocoma:v:30:y:2023:i:c:s2405851322000411
    DOI: 10.1016/j.jcomm.2022.100284
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    2. Sheikh, Umaid A. & Asadi, Mehrad & Roubaud, David & Hammoudeh, Shawkat, 2024. "Global uncertainties and Australian financial markets: Quantile time-frequency connectedness," International Review of Financial Analysis, Elsevier, vol. 92(C).
    3. Aharon, David Y. & Ali, Shoaib, 2024. "A high-frequency data dive into SVB collapse," Finance Research Letters, Elsevier, vol. 59(C).

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    More about this item

    Keywords

    Stocks; Precious metals; Spillovers; Quantile coherency; Quantile frequency connectedness;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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