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Dynamic relationship between precious metals

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  • Sensoy, Ahmet

Abstract

We use a relatively new approach to endogenously detect the volatility shifts in the returns of four major precious metals (gold, silver, platinum and palladium) from 1999 to 2013. We reveal that the turbulent year of 2008 has no significant effect on volatility levels of gold and silver however causes an upward shift in the volatility levels of palladium and platinum. Using the consistent dynamic conditional correlations, we show that precious metals get strongly correlated with each other in the last decade which reduces the diversification benefits across them and indicates a convergence to a single asset class. We endogenously detect the shifts in these dynamic correlation levels and reveal uni-directional volatility shift contagions among precious metals. The results show that gold has a uni-directional volatility shift contagion effect on all other precious metals and silver has a similar effect on platinum and palladium. However, the latter two do not matter in terms of volatility shift contagion. Thus, investors that hedge with precious metals should, in particular, monitor the volatility levels of gold and silver.

Suggested Citation

  • Sensoy, Ahmet, 2013. "Dynamic relationship between precious metals," Resources Policy, Elsevier, vol. 38(4), pages 504-511.
    • Handle: RePEc:eee:jrpoli:v:38:y:2013:i:4:p:504-511
    DOI: 10.1016/j.resourpol.2013.08.004
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    More about this item

    Keywords

    Volatility shift contagion; Precious metals; Consistent dynamic conditional correlation; Penalized contrast function; Dynamic equicorrelation;
    All these keywords.

    JEL classification:

    • 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
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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