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Volatility transmission between gold and oil futures under structural breaks

Author

Listed:
  • Ewing, Bradley T.
  • Malik, Farooq
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.

Suggested Citation

  • Ewing, Bradley T. & Malik, Farooq, 2013. "Volatility transmission between gold and oil futures under structural breaks," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 113-121.
    • Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:113-121
    DOI: 10.1016/j.iref.2012.06.008
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Volatility transmission; Oil volatility; Gold volatility; Structural breaks; GARCH;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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