Volatility transmission between gold and oil futures under structural breaks

Bradley T. Ewing, Farooq Malik

Research output: Contribution to journalArticlepeer-review

153 Scopus citations

Abstract

This paper employs univariate and bivariate GARCH models to examine the volatility of gold and oil futures incorporating structural breaks using daily returns from July 1, 1993 to June 30, 2010. We find strong evidence of significant transmission of volatility between gold and oil returns when structural breaks in variance are accounted for in the model. We compute optimal portfolio weights and dynamic risk minimizing hedge ratios to highlight the significance of our empirical results. Our findings support the idea of cross-market hedging and sharing of common information by financial market participants.

Original languageEnglish
Pages (from-to)113-121
Number of pages9
JournalInternational Review of Economics and Finance
Volume25
DOIs
StatePublished - Jan 2013

Keywords

  • GARCH
  • Gold volatility
  • Oil volatility
  • Structural breaks
  • Volatility transmission

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