Portfolio management and dependencies among precious metal markets: Evidence from a Copula quantile-on-quantile approach

Khamis Hamed Al-Yahyaee, Walid Mensi*, Debasish Maitra, Idries Mohammad Wanas Al-Jarrah

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study examines the dependence structure among four major precious metal markets: gold, palladium, platinum, and silver. Using the novel Copula Quantile-on-Quantile Regression (C-QQR) approach of Sim (2016), we show that precious metals share a systemic relationship despite their different demand-supply interplays, applications, and the macroeconomic factors, which influence their values. Our results also suggest that correlations among markets do not remain constant over time. Furthermore, we identify the quantiles of returns for two metals where maximum benefits of negative correlations can be obtained to enhance portfolio diversification. This knowledge provides an opportunity for hedgers to decide when they should avoid going long or short on a particular metal. Finally, we find that our approach determines optimal portfolio weights that can reduce risk in metals markets more efficiently than traditional, conditional covariance-based approaches.

Original languageEnglish
Article number101529
JournalResources Policy
Volume64
DOIs
Publication statusPublished - Dec 1 2019

Keywords

  • Copula quantile-on-quantile
  • Hedging
  • Precious metal markets
  • Tail dependence

ASJC Scopus subject areas

  • Sociology and Political Science
  • Economics and Econometrics
  • Management, Monitoring, Policy and Law
  • Law

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