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A quantile regression analysis of flights-to-safety with implied volatilities

Author

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  • Troster, Victor
  • Bouri, Elie
  • Roubaud, David
Abstract
In this paper, we perform a quantile regression analysis of flights-to-safety with the implied market volatilities of stock, gold, gold-mining, and silver. We verify whether flights-to-safety from US equities to gold are significant under different volatility conditions. We test for linear and nonlinear Granger-causality in quantiles. We find unidirectional causality running from the volatility of stock market to the market volatilities of gold, gold-mining, and silver. Besides, there is no causality between gold and silver market volatilities. We also find evidence of unidirectional causality from the market volatilities of stock, gold, and silver to the gold-mining volatility in lower- and upper-tail quantiles. Therefore, gold-mining stocks act as a good substitute for gold, coupled with negative return correlations between these two assets. Overall, our results have important implications for adopting optimal hedging and investing strategies.

Suggested Citation

  • Troster, Victor & Bouri, Elie & Roubaud, David, 2019. "A quantile regression analysis of flights-to-safety with implied volatilities," Resources Policy, Elsevier, vol. 62(C), pages 482-495.
    • Handle: RePEc:eee:jrpoli:v:62:y:2019:i:c:p:482-495
    DOI: 10.1016/j.resourpol.2018.10.004
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    More about this item

    Keywords

    Flight-to-safety; VIX; Implied volatilities; Gold; Granger-causality; Quantile regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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