Dynamic spillovers between commodity and currency markets

Abstract

In this study, we examine the dynamic link between returns and volatility of commodities and currency markets. Based on weekly data over the period from January 6, 1987 to July 22, 2014, we find the following empirical regularities. First, our results suggest that the information contents of gold, silver, platinum, and the CHF/USD and GBP/USD exchange rates can help improve forecast accuracy of returns and volatilities of palladium, crude oil and the EUR/CHF and GBP/USD exchange rates. Second, gold (CHF/USD) is the dominant commodity (currency) transmitter of return and volatility spillovers to the remaining assets in our model. Third, the analysis of dynamic spillovers shows time-and event-specific patterns. For instance, the dynamic spillover effects originating in gold and silver (platinum) returns and volatility intensified (degraded) in the period marked by the global financial crisis. After the global financial crisis, the net transmitting role of gold and silver (platinum) returns shocks weakened (strengthened), while the net transmitting role of gold, silver and platinum volatility shocks remained relatively high. Overall, our findings reveal that, while the static analysis clearly classifies the aforementioned variables into net transmitters and net receivers, the dynamic analysis denotes episodes wherein the role of transmitters and receivers of return (volatility) spillovers can be interrupted or even reversed. Hence, even if certain commonalities prevail in each identified category of commodities, such commonalities are time-and event-dependent.

Information Content of Trading Activity in Precious Metals Futures Markets

“…A consideration of asymmetries in different market states is consistent with several empirical studies which show that linear return/volatility models may be misleading in case of precious metals spot and futures markets (e.g. Antonakakis & Kizys, 2015;Arouri et al, 2012;Bhar & Hammoudeh, 2011;Charlot & Marimoutou, 2014).…”

The Independence of Indexed Volatilities

“…Antonakakis and Kizys [13] investigated dynamic spills between commodity and currency markets. In [13], it is argued that precious metals (gold, silver, platinum and palladium) have been seen as safe havens during final crisis.…”

“…Antonakakis and Kizys [13] investigated dynamic spills between commodity and currency markets. In [13], it is argued that precious metals (gold, silver, platinum and palladium) have been seen as safe havens during final crisis. Further, they state that inclusion of precious metals in equity portfolios decreases systematic risk of investments; therefore, diversification accrues in those investments.…”

“…They research is centred on these questions; (i) how time-varying spills differ among commodity and currency markets, and (ii) what is the relationship between returns and volatilities during financial transmission. In answering those questions, Antonakakis 5 The Independence of Indexed Volatilities DOI: http://dx.doi.org /10.5772/intechopen.90240 and Kizys [13] used the spillover index which is performed by using rolling-window forecast error variance decomposition (FEVD) by transmitters and receivers of shocks.…”

Downside/upside price spillovers between precious metals: A vine copula approach

“…Other studies have focused on modelling and forecasting precious metal volatility using different generalized autoregressive conditional heteroskedastic (GARCH) specifications, finding evidence of volatility dynamics, asymmetric effects, persistence in volatility and volatility breaks in precious metal prices (Arouri, Hammoudeh, Lahiani, & Nguyen, 2012;Baur, 2012;Cochran, Mansur, & Odusami, 2012;Hammoudeh & Yuan, 2008;Tully & Lucey, 2007;Vivian & Wohar, 2012). Another strand of the literature has examined conditional volatility and correlation dependency between four major precious metals as well as spillover effects from precious metals to currency markets, finding evidence of high correlation between precious metals (Sensoy, 2013), of volatility spillovers between precious metals (Hammoudeh, Yuan, McAleer, & Thompson, 2010) and of spillover effects from precious metals to currency and crude oil prices (Antonakakis & Kizys, 2015). Finally, more recent empirical studies have focused on modelling and forecasting value-at-risk (VaR) of precious metals (Cheng & Hung, 2011;Demiralay & Ulusoy, 2014;Hammoudeh, Malik, & McAleer, 2011;Hammoudeh, Araújo Santos, & Al-Hassan, 2013) and on studying the hedge and safehaven properties of precious metals for financial assets (see, e.g., Baur & McDermott, 2010;Baur & Lucey, 2010;Reboredo, 2013aReboredo, , 2013bReboredo & Rivera-Castro, 2014b; and references therein).…”