Volatility Spillover Effects: VIX and Precious Metals

The increased volatility of precious metals and other commodities has become more commonplace because of the volatile global economic environment. This study examines the relationship between market volatility and precious metals. VIX Index, which reflects investor’s sentiments, is used as a proxy f...

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Bibliographic Details
Published in:The journal of wealth management 2020-12, Vol.23 (3), p.99-111
Main Authors: Chaudhry, Mukesh K., Bhargava, Vivek
Format: Article
Language:English
Subjects:
Asset allocation
Commodity prices
Currency
Equilibrium
Equity
Error correction & detection
Gold
Hedging
Investments
Investors
Metals
Portfolio performance
Precious metals
Put & call options
Silver
Spillover effect
Stochastic models
Stock exchanges
Volatility
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Summary:The increased volatility of precious metals and other commodities has become more commonplace because of the volatile global economic environment. This study examines the relationship between market volatility and precious metals. VIX Index, which reflects investor’s sentiments, is used as a proxy for market volatility. From the results, it is evident that the spillover of volatility from the VIX Index occurs for all precious metals. This effect, however, is asymmetric for only silver and platinum. In addition, once the volatility spillover occurs, disequilibrium from changes in the VIX Index for copper is corrected with a lag; it takes a much longer time for disequilibrium to be corrected for gold, silver, and platinum for volatile time periods. For calm periods, the impact of VIX Index on precious metals is muted. TOPICS: Commodities, volatility measures Key Findings • Market volatility or VIX Index has a profound impact on precious metals. • Volatility spillover is asymmetric for silver and platinum. • Disequilibrium from changes in VIX Index for copper is quickly corrected, whereas it takes longer time to be corrected for gold, silver, and platinum for volatile time periods; the effect is muted for calm periods.
ISSN:1534-7524
2374-1368
DOI:10.3905/jwm.2020.1.115