Do precious metals hedge crude oil volatility jumps?

Das, Debojyoti, Bhatia, Vaneet, Kumar, Surya Bhushan and Basu, Sankarshan (2022) Do precious metals hedge crude oil volatility jumps? International Review of Financial Analysis, 83: 102257. ISSN 10575219

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In this study, we investigate the impacts of contemporaneous and lagged implied oil volatility (OVX) jumps on precious metals (gold, palladium, platinum, and silver) with the focus on hedging property of precious metals. Additionally, the impacts of OVX jumps on precious metals is investigated in returns and volatility. The results show that gold returns are relatively less responsive against contemporaneous and lagged OVX jumps, thus, gold acts as a weak hedge against OVX jumps. However, other metals (copper, palladium, platinum, and silver) do not serve as a hedge against contemporaneous OVX jumps. Nevertheless, these metals takeover the traditional hedging favourite ‘gold’ in the case of lagged OVX jumps and offers a strong hedge. It suggests that ignoring past information could severely undermine the investigation of OVX and the precious metal relationship. OVX jumps result in an increased volatility in precious metals, thereby indicating that all precious metals behave as a single asset class in terms of volatility transmissions. Moreover, gold is the contemporaneous metal of choice when risk perception is high or investors are averse to risk. Nevertheless, as information is diffused, other metals yield better performance as a hedge.

Item Type: Article
Keywords: Gold | Hedging | Oil implied volatility | Oil volatility jumps | Precious metals
Subjects: Social Sciences and humanities > Business, Management and Accounting > General Management
JGU School/Centre: Jindal School of Banking & Finance
Depositing User: Amees Mohammad
Date Deposited: 22 Jul 2022 03:23
Last Modified: 22 Jul 2022 03:23
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