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Dynamic Linkages of Energy Commodities with Bullion and Metal Market: Evidence of Portfolio Hedging

Author

Listed:
  • Rajwani, Shegorika

    (Indian Institute of Foreign Trade)

  • Kumar Tiwar, Aviral

    (Indian Institute of Management Bodh Gaya)

  • Prasad Yadav, Miklesh

    (Indian Institute of Foreign Trade, Kakinada Campus)

  • Sharma, Sakshi

    (Jawaharlal Nehru University)

Abstract

This paper examines the dynamic linkages of volatility of energy commodities with bullion and the metal market. The proxies of energy commodities are crude oil and natural gas; bullion markets are Gold, silver and platinum and metal markets are copper and zinc. We collect daily data extending from March 18, 2010, to January 15, 2021, a period for about 12 years and employ Granger causality, Dynamic Conditional Correlation (DCC), Diebold Yilmaz (2012), Baruník & Křehlík (2018), and Network analysis for the purpose of examining spillover effect in the data considered. It is observed that there are short-run dynamic spillovers from energy (crude oil) to metal (copper) while long-run linkage is witnessed among all the constituent series. Further, Baruník & Křehlík (2018) test reveals that the total connectedness of the seven data series under study are found to be higher in frequency 2 (6 days to 15 days) than in the short run and long run. Referring to the network analysis, negative correlations are found between each pair of indices considered, i.e., Gold, silver, platinum, zinc, copper with crude oil while positive correlation is witnessed between Gold and silver. In addition, we determine portfolio hedge ratios and portfolio weights for the investors and portfolio managers. It is found that the Crude /Zinc pair had the most expensive optimal hedge ratio, while Crude/Gold had the least expensive hedging.

Suggested Citation

  • Rajwani, Shegorika & Kumar Tiwar, Aviral & Prasad Yadav, Miklesh & Sharma, Sakshi, 2023. "Dynamic Linkages of Energy Commodities with Bullion and Metal Market: Evidence of Portfolio Hedging," American Business Review, Pompea College of Business, University of New Haven, vol. 26(1), pages 148-179, May.
    • Handle: RePEc:ris:ambsrv:0075
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    Cited by:

    1. Miklesh Yadav & Sabia Tabassum & Anas Ali AlQudah & Manaf Al-Okaily & Myriam Aloulou & Nikola Stakic & Marcos Santos, 2024. "Does COVID-19 Outbreak Push Saudi Crude Oil to Connect with Selected GCC Equity Market? Insight of Time Varying Linkage," Computational Economics, Springer;Society for Computational Economics, vol. 63(3), pages 1047-1070, March.
    2. Yadav, Miklesh Prasad & Abedin, Mohammad Zoynul & Sinha, Neena & Arya, Vandana, 2024. "Uncovering dynamic connectedness of Artificial intelligence stocks with agri-commodity market in wake of COVID-19 and Russia-Ukraine Invasion," Research in International Business and Finance, Elsevier, vol. 67(PA).

    More about this item

    Keywords

    Dynamic Linkages; Energy Commodity; Bullion Market; Metal Market; Portfolio Hedging;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: 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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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