The conditional dependence structure between precious metals: a copula-GARCH approach

Wanat, Stanisław and Papież, Monika and Śmiech, Sławomir (2014): The conditional dependence structure between precious metals: a copula-GARCH approach.

Abstract

The aim of the paper is to analyse the conditional dependence structure between precious metal returns using a copula-DCC-GARCH approach. Conditional correlation matrices are used to identify the states of the precious metals market by assuming that a given state of the market corresponds to a typical pattern of the conditional dependence structure. Cluster analysis allows for pointing at transition points between the market states, that is the points of drastic change in the conditional dependence structure. The application of the methodology described above to the period between 1997 and 2013 indicates three market states of four major precious metals (gold, silver, platinum and palladium). The results obtained reveal a sudden increase in dependencies between precious metals at the turn of April and May 2004.

• Item Type: MPRA Paper
• Language: English
• Keywords: precious metals, dependence structure, copula-GARCH, market states
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q02 - Commodity Markets

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