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Return and volatility transmission among economic policy uncertainty, geopolitical risk and precious metals

Author

Listed:
  • Opeoluwa Adeniyi Adeosun
  • Suhaib Anagreh
  • Mosab I. Tabash
  • Xuan Vinh Vo

Abstract

Purpose - This paper aims to examine the return and volatility transmission among economic policy uncertainty (EPU), geopolitical risk (GPR), their interaction (EPGR) and five tradable precious metals: gold, silver, platinum, palladium and rhodium. Design/methodology/approach - Applying time-varying parameter vector autoregression (TVP-VAR) frequency-based connectedness approach to a data set spanning from January 1997 to February 2023, the study analyzes return and volatility connectedness separately, providing insights into how the data, in return and volatility forms, differ across time and frequency. Findings - The results of the return connectedness show that gold, palladium and silver are affected more by EPU in the short term, while all precious metals are influenced by GPR in the short term. EPGR exhibits strong contributions to the system due to its elevated levels of policy uncertainty and extreme global risks. Palladium shows the highest reaction to EPGR, while silver shows the lowest. Return spillovers are generally time-varying and spike during critical global events. The volatility connectedness is long-term driven, suggesting that uncertainty and risk factors influence market participants’ long-term expectations. Notable peaks in total connectedness occurred during the Global Financial Crisis and the COVID-19 pandemic, with the latter being the highest. Originality/value - Using the recently updated news-based uncertainty indicators, the study examines the time and frequency connectedness between key uncertainty measures and precious metals in their returns and volatility forms using the TVP-VAR frequency-based connectedness approach.

Suggested Citation

  • Opeoluwa Adeniyi Adeosun & Suhaib Anagreh & Mosab I. Tabash & Xuan Vinh Vo, 2024. "Return and volatility transmission among economic policy uncertainty, geopolitical risk and precious metals," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 41(5), pages 1057-1084, January.
  • Handle: RePEc:eme:sefpps:sef-10-2023-0586
    DOI: 10.1108/SEF-10-2023-0586
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    More about this item

    Keywords

    Economic policy uncertainty; Geopolitical risk; Precious metals; TVP-VAR frequency connectedness; GFC; Covid-19; C32; E30; F30; G10; Q40;
    All these keywords.

    JEL classification:

    • 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
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F30 - International Economics - - International Finance - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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