Cryptocurrency policy uncertainty and gold return forecasting: A dynamic Occam's window approach

Cryptocurrency Uncertainty and Volatility Forecasting of Precious Metal Futures Markets

“…The statistically significant values of the 𝜃 𝑋 in UCRY Policy and UCRY Price point out that a high cryptocurrency policy uncertainty and price uncertainty causes significant divergence in the expectations of the precious metal future investors. This result is qualitatively consistent with the finding in Shang et al (2022) about the interconnection between gold price volatility and cryptocurrency uncertainty. The authors show that UCRY Policy does have good predictive power in forecasting weekly gold returns.…”

“…In conclusion, the MCS results further support the previous findings from the DM test, and the meaningful primary point is that the cryptocurrency price uncertainty index is more helpful for predicting volatility in the precious metal market. Our results also reflect the existing research findings of Klein et al (2018), Hassan et al (2021), Elsayed et al (2022), Shang et al (2022). While the researchers find evidence of dependency between the cryptocurrency market and the precious metal market, we can summarise that cryptocurrency uncertainty indices do also have predictive information for the long-run volatility in the precious metal market.…”

“…These findings reveal that cryptocurrency indices may simultaneously change the expectations of cryptocurrency speculators and precious metal futures' investors and thus synthetically affect the volatility of precious metals' prices. It is also worth mentioning that Shang et al (2022) have proven that the cryptocurrency policy uncertainty index has better predictive power than many commonly used gold predictors. As the global cryptocurrency market capitalisation is around $841.15B now, and also supported by the existing findings of the volatility spillover transmission mechanism between the cryptocurrency and precious metal markets (Klein et al, 2018;Hassan et al, 2021;Elsayed et al, 2022).…”

An analysis of the dynamic relationship between cryptocurrency uncertainty and white precious metals

“…most of the quantiles, the UCRY policy has a positive effect. Overall, hypothesis 1 is rejected as it appears that cryptocurrency uncertainty does not lead to destabilizing effects in the precious metal market, and UCRY price and UCRY policy have no signi cant information value in explaining expected silver, palladium and platinum returns which is not consistent with the ndings ofShang et al (2022) andWei et al (2023) stating that these uncertainty measures have a signi cant impact on the volatilities of gold and silver and are potentially good predictors of daily volatility in precious metal markets.…”

“…They concluded that gold remains the leading safe-haven asset for hedging against uncertainty. Using a TVP regression-based Dynamic Occam's Window (DOW) forecasting framework,Shang et al (2022) stated that cryptocurrency policy uncertainty helps to predict weekly gold returns Elsayed et al (2022). assessed the connectedness between gold, cryptocurrency uncertainty indices, economic and market uncertainty indices using the Time-Varying Parameter Vector Autoregressive.…”