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Dynamics and causality in distribution between spot and future precious metals: A copula approach

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  • Talbi, Marwa
  • de Peretti, Christian
  • Belkacem, Lotfi

Abstract

This paper examines the dependence structure and the Granger causality in distribution (GCD) between spot and future returns of precious metals (gold, silver, and platinum) via copula modelling. This study considers the evidence on real precious metals returns from Jan 2, 2002 to Jan 13, 2017. Throughout literature, the use of copula in precious metals markets is still limited. Indeed, unlike linear methods, using a copula-based approach has several attractive advantages. Our empirical findings show the following: (1) Using static and dynamic copulas, we find that the dependence between the spot and the future returns of precious metals is relatively strong and time varying with a strong tail dependence for all pairs (3) Using independence test based on the empirical copula, we detect a unidirectional GCD from future to spot precious metals market during normal times. This results means that past information from the future returns improve forecasts of spot returns. However, the causal relationship seems to be bidirectional in the case of gold and platinum during crisis periods.

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  • Talbi, Marwa & de Peretti, Christian & Belkacem, Lotfi, 2020. "Dynamics and causality in distribution between spot and future precious metals: A copula approach," Resources Policy, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:jrpoli:v:66:y:2020:i:c:s0301420719305215
    DOI: 10.1016/j.resourpol.2020.101645
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    7. Zhang, Jiao & Li, Youping & Liu, Chunqiong & Wu, Bo & Shi, Kai, 2022. "A study of cross-correlations between PM2.5 and O3 based on Copula and Multifractal methods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 589(C).
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    More about this item

    Keywords

    Copula; Granger causality in distribution; Nonparametric test based on the empirical copula; Precious metals; Future market; Spot market;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G1 - Financial Economics - - General Financial Markets

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