Dynamic spillovers and portfolio risk management between defi and metals: Empirical evidence from the Covid-19

Using a novel TVP-VAR approach, we investigate the connectedness between precious metals, industrial metals, and decentralized finance (DeFi) assets during pre-pandemic and Covid sub-periods. We also calculate optimal portfolio weights, hedge ratios, and hedging effectiveness estimates for the portfolios of metals and DeFi assets. Results reveal that the association between DeFi-precious metal and DeFi-industrial metal pairs is weaker compared to the association between traditional precious and industrial metals. The interconnectedness of these markets increased during the Covid-19 period. All DeFi assets, as well as palladium, aluminum, zinc, and Nickel, are net importers of return spillover, while gold, silver, platinum, and copper are net exporters of return spillovers. The return transmission between these markets is rolling, with rapid fluctuations during the Covid-19 period. Finally, the optimal portfolio analysis reveals that adding DeFi assets to the metals-based portfolio is helpful in terms of diversification. These findings are insightful for portfolio managers and policymakers regarding portfolio construction, portfolio adjustment, hedging, and market stability.

Precious Metals Price Forecast with Arch Family Models in Covid-19 Pandemic Period

The COVID-19 virus, which was detected for the first time in Wuhan, China in December 2019, spread to all countries of the world and, therefore, became a global epidemic. Although more than two years have passed since the outbreak of the COVID-19 pandemic, the economic effects of it continue. One of these is the effect of the pandemic on precious metal prices. Precious metals, which are called safe harbours and used as investment tools, have had a serious volatility in the last century as a result of the economic, political and pandemic factors changing the international balances. From this point of view, in this study, it is aimed to determine the appropriate forecasting model to predict the volatility of gold, silver, platinum and palladium prices, which are called precious metals, during the COVID-19 pandemic period. The econometric analysis covers the period between March 11, 2020, when the global epidemic was declared by the World Health Organization, and September 13, 2021, and includes 326 days of observation. To determine the appropriate forecasting model, ARCH, GARCH, T-GARCH, E-GARCH and PARCH are used as symmetrical and asymmetrical volatility models.

News-based uncertainty measures and returns on prices of precious metals: evidence from regime switching and time-varying causality approach

PurposeThe study aims to examine the relationship among economic policy uncertainty (EPU), geopolitical-risks (GPR), the interaction (EPGR) of EPU and GPR and the returns of gold, silver, platinum, palladium and rhodium using monthly data from January (1997) to May (2021).Design/methodology/approachThe paper employs the Markov-switching and the novel Shi et al. (2020) bootstrap time-varying Granger-causality approach.FindingsThough the Markov-switching shows variation in the responses of precious metals to EPU, GPR and EPGR across low and high states, the paper observes the safe-haven potential of the precious metals in the high regime while the hedging potency is also evident in the results. To further substantiate the safe-haven and hedging properties, the time-varying Granger-causality shows the causal effect of EPU on all the selected precious metal returns coinciding with global events. While the authors show that GPR Granger causes platinum, palladium and rhodium consistently under the rolling/recursive-evolving tests, the authors cannot find the causal effect of GPR on gold and silver returns across the algorithms. The paper also observes persistence in the causal effect of EPGR on palladium and platinum across all the algorithms, while gold and rhodium only show consistency in the responses under the rolling- and recursive-evolving algorithms given the conditions of homoscedasticity and heteroscedasticity.Practical implicationsThe authors' results are essential to investors and policymakers since both typically leverage the hedging and safe-haven characteristics of precious metals to obviate downside risks during highly uncertain periods.Originality/valueThe authors' techniques allow examining the hedging and safe-haven properties of precious metals across regimes and date-stamp critical periods of causation inherent in the relationship.

Continuous Wavelet Transform of Time-Frequency Analysis Technique to Capture the Dynamic Hedging Ability of Precious Metals

Exploring the hedging ability of precious metals through a novel perspective is crucial for better investment. This investigation applies the wavelet technique to study the complicated correlation between global economic policy uncertainty (GEPU) and the prices of precious metals. The empirical outcomes suggest that GEPU exerts positive influences on the prices of precious metals, indicating that precious metals could hedge against global economic policy uncertainty, which is supported by the inter-temporal capital asset pricing model (ICAPM). Among them, gold is better for long-term investment than silver, which is more suitable for the short run in recent years, while platinum's hedging ability is virtually non-existent after the global trade wars. Conversely, the positive influences from gold price on GEPU underline that the gold market plays a prospective role in the situation of economic policies worldwide, which does not exist in the silver market. Besides, the effects of platinum price on GEPU change from positive to negative, suggesting that the underlying cause of its forward-looking effect on GEPU alters from the investment value to the industrial one. In the context of the increasing instability of global economic policies, the above conclusions could offer significant lessons to both investors and governments.

The Impact of Energy Prices on Precious Metals: A Comparison of the SARS-COV2 Period and Prior Period

Commodities are defined as goods that are traded. Thousands of different items are sold on international markets, but strategically important commodities such as gold, silver, and oil are used far more frequently in the real estate industry and financial markets. Oil and these metals are employed in numerous industrial applications throughout the economy, but they also draw substantial investment. The purpose of this study is to investigate the causal connections between the prices of gold and silver, two precious metals, and oil and natural gas, the two most often used energy sources. This was accomplished by comparing the weekly prices of Brent Petroleum (BRENT), Crude Oil (WTI), Natural Gas (NG), and the weekly data of Gold and Silver during and before the SARS-CoV2 epidemic. The study employed the Distributed Delayed Autoregressive Bound Test (ARDL) approach to examine the relationship between the prices of energy (natural gas, Brent oil, and crude oil) and precious metals (silver and gold). The ARDL test showed that the prices of WTI, Brent, and NG had a big effect on the prices of silver and gold during and before the SARS-COV2 pandemic.

Effects of Interdependence and Contagion on Crude Oil and Precious Metals According to ρDCCA: A COVID-19 Case Study

The energy sector has been the main economic hub in everyone's lives and in world geopolitics. Consequently, oil, gas, electricity and energy from renewable sources (wind and solar) are traded on the stock market, and all interconnected around the world. On the other hand, a global health crisis, such as COVID-19, can produce a great economic catastrophe. In this scenario, a robust statistical analysis will be performed here with respect to the concept of interdependence and contagion effect. For this project, we chose to study the relationship between the main source of energy (crude oil, WTI and Brent) and two (Gold and Silver) precious metals (which are a safe haven for investment). Therefore, with the novelty of the application of (Formula presented.) and (Formula presented.) coefficients before and during the COVID-19 crisis (announced by the World Health Organization), the interdependence and the contagion effect were calculated. We verified that COVID-19 had no influence on contagion effect between crude oil in its indexes, WTI and Brent, since they have already shown to be highly interdependent, both before and after the World Health Organization COVID-19 decree. Likewise, COVID-19 had a significant influence on the crude oil and precious metal sectors, which was evident as we identified an increase in its interdependence, with a clearly positive contagion. These results show that COVID-19 imposed a restructuring in the relationship between energy (crude oil) and precious metals. More details will be presented throughout this article. © 2023 by the authors.

Forecasting the volatility of precious metals prices with global economic policy uncertainty in pre and during the COVID-19 period: Novel evidence from the GARCH-MIDAS approach

Economic policy is a major determinant of investment and financial decisions;Moreover, prices of precious metals are highly influenced by any uncertainty recorded in the global economic policy. Therefore, the prime consideration of the authors is to assess how global economic policy uncertainty influences the volatility of precious metals prices;particularly "gold, palladium, platinum, and silver” in the pre and during the COVID-19 pandemic. This research analyzed the full sample period (the 1997–2022), pre-COVID period (1997–2019), and during the COVID period (2020−2022) to evaluate the impact during different sample periods. Therefore, the GARCH-MIDAS approach is employed at the data set of different frequencies, i.e., monthly data of GEPU and daily data of precious metals. The results reveal a significant nexus between global GEPU and precious metals price volatility. The findings infer that any uncertainty recorded in global economic policy escalate the price volatility of gold, palladium, platinum, and silver prices. The present study increments the existing literature and provides insights for future scholars, investors, and policymakers. © 2023 Elsevier B.V.

High frequency volatility spillover between oil and non-energy commodities during crisis and tranquil periods.

In this article, we scrutinize volatility spillover between oil and individual non-energy commodities during crisis and non-crisis periods. We use high-frequency data to capture the effects of both the global financial crisis (2008) and the COVID-19 pandemic between 2008 and 2022. To this end, we utilize wavelet coherence analysis to diagnose the magnitudes of dynamic co-movements and lead-lag effects between commodities. Our results provide evidence of strong coherence between oil and the majority of individual non-energy commodities during both crises. Precious metals were generally found to exhibit heightened levels of co-movement with oil as opposed to other non-energy commodities. On the other hand, weak co-movements were found between oil and a few commodities, namely soy, wheat, zinc, and tin. The lead-lag effects of oil on agricultural commodities, base metals, and precious metals were evident, especially during crisis periods. However, aluminium and precious metals, especially gold, silver, and palladium, also had a lead-lag effect on oil at different points in time, including during the pandemic. We further utilize dynamic frequency-domain connectedness for capturing pairwise volatility spillover indices, with the results providing evidence of heightened volatility spillovers during turbulent times. Our findings have significant implications for retail investors, portfolio managers, and policymakers.

Bubble contagion effect between the main precious metals

Purpose: This study examines the extent to which gold and silver bubbles are correlated and which metal's bubble spills over to the other. In addition, the overlap in bubble-like episodes for the two metals is demonstrated and the influence of crises (global financial crises, European debt crisis and the COVID-19 pandemic) on the development of these episodes is compared. Design/methodology/approach: This study proposes a two-step approach. In the first step, price bubbles are identified based on the backward sup augmented Dickey–Fuller of Phillips et al. (2015a, 2015b) and modified by Phillips and Shi (2018). In the second step, the correlation in the contagion effect of the bubbles between the two precious metal prices is measured using a nonparametric regression with a time-varying coefficient approach developed by Greenaway-McGrevy and Phillips (2016). Findings: The findings suggest that the safe-haven property of gold and silver during financial market turbulence induces excessive price increases beyond their fundamental values. Furthermore, the results indicate that bubbles are contagious among precious metal markets and flow mainly from gold to silver;these findings are associated with the period after 2005, particularly during the global financial crisis. A contagious bubble effect is not found between gold and silver during the coronavirus disease 2020 pandemic. Practical implications: The results suggest that financial market participants should consider portfolio weights in precious markets in light of the bubble correlation between gold and silver, especially during crises. Originality/value: To the best of the authors' knowledge, this is the first study that explores the correlation of bubble-like episodes between gold and silver. © 2022, Emerald Publishing Limited.

Aggregate, asymmetric and frequency-based spillover among equity, precious metals, and cryptocurrency

This study evaluates the portfolio diversification potential of different classes of assets-equity, cryptocurrency and precious metals-using total, asymmetric and frequency-based spillover transmission framework. The VARbased generalized variance decomposition method is used to analyse the daily prices of S&P 500, bitcoin, gold, silver and platinum between April 2011 through January 2021. The results of aggregate spillover support bitcoin as a potential diversifier due to its isolation from other sets of assets. The decomposition of overall spillover into downside and upside spillover reveals a higher downside connectedness than the upside, suggesting an asymmetric interdependence amongst these markets. Moreover, the frequency based aggregate spillovers suggest the connectedness is driven mostly by the shorter time-horizons. The study provides important policy implications for market participants with distinct investment objectives.

Downside and upside risk spillovers between precious metals and currency markets: Evidence from before and during the COVID-19 crisis

This paper investigates the tail dependence dynamics and asymmetric risk spillovers between the futures of four important precious metals (gold, silver, platinum, and palladium) and seven leading currencies (EUR, GBP, JPY, CAD, AUD, CHF, and CNY) before and during the COVID-19 crisis using the time-varying-parameter copula and the conditional Value-at-Risk (CoVaR) method. The results show the symmetric dependence between currencies and precious metals before the COVID-19 crisis. In contrast, we show negative and positive tail asymmetric dependences during the pandemic crisis. The COVID-19 crisis significantly amplifies the magnitude of spillover effects among the studied markets where the AUD currency exhibits the largest transmission and reception of downside and upside spillover to/from most precious metals before and during the pandemic crisis. Currency investors and portfolio managers could use the obtained results to better hedge and manage their investment positions when markets are affected by health crises.

Volatility spillovers, hedging and safe‐havens under pandemics: All that glitters is not gold!

In the context of the COVID-19's outbreak and its implications for the financial sector, this study analyses the aspect of hedging and safe-haven under the pandemic. Drawing on the daily data from 02 August 2019 to 17 April 2020, our key findings suggest that the contagious effects in financial assets' returns significantly increased under COVID-19, indicating exacerbated market risk. The connectedness spiked in the middle of March, consistent with lockdown timings in major economies. The effect became severe with the WHO's declaration of a pandemic, confirming negative news effects. The return connectedness suggests that COVID-19 has been a catalyst of contagious effects on the financial markets. The crude oil and the government bonds are however not as much affected by the spillovers as their endogenous innovation. In terms of spillovers, we do find the safe-haven function of Gold and Bitcoin. Comparatively, the safe-haven effectiveness of Bitcoin is unstable over the pandemic. Whereas, GOLD is the most promising hedge and safe-haven asset, as it remains robust during the current crisis of COVID-19 and thus exhibits superiority over Bitcoin and Tether. Our findings are useful for investors, portfolio managers and policymakers interested in spillovers and safe havens during the current pandemic.

Extreme return spillovers and connectedness between crude oil and precious metals futures markets: Implications for portfolio management

This paper examines quantile return spillovers and the connectedness between crude oil futures and key precious metals (PMs) using the approach developed by Ando et al. (2022). Our findings show that using the cross-quantilogram directional spillover method results in significant spillovers from oil to PMs under an extreme downside oil market scenario. Oil impacts both palladium and platinum under an extreme upside oil market status. Under normal oil market conditions, we show insignificant spillovers from oil to PMs. We find an insignificant dependence of PMs on oil during bearish markets, indicating that PMs serve as a safe haven asset. However, we find that oil and palladium are net receivers of spillovers across quantiles, except for palladium at intermediate quantiles, and other PMs are net contributors of spillovers across all quantiles. The spillovers are higher at extreme quantiles and increase during extreme events. Furthermore, we find no connection between platinum and gold under normal market conditions and a weak connection between platinum and both silver and palladium during bearish market scenarios. Precious metals are good diversifying assets for oil portfolios. The hedging strategy using PMs is less expensive during the COVID-19 pandemic than before it, with the exception of platinum. Finally, PMs offer higher hedging effectiveness before the pandemic crisis, whereas palladium provides the highest hedging effectiveness before and during the pandemic crisis.

Quantile dependencies and connectedness between stock and precious metals markets

The paper examines the frequency-based interlinkages between stock indices and precious metals at extreme and median quantiles. It employs the quantile cross-spectral approach (Baruník and Kley, 2019) and the novel frequency quantile connectedness analysis (Chatziantoniou et al., 2021) to a sample of stocks and precious metals returns. The results show that the interdependence between equity indices and precious metals markets is contingent on the state of the market (bear, bull, or normal) and the horizon of frequency domains. Of all precious metals, the diversification benefits from gold, followed by silver, are consistently the highest for SP500 and STOXX50 and the least with palladium in most cases. The same holds when we investigate the diversification potential of precious metals for industrial sectors in the US and UK. A quantile frequency connectedness approach reveals that the diversification potential of precious metals diminishes in the long frequency horizon as coherence with stock indices becomes highly positive. The connectedness between stock indices and precious metals is high during market extremities but dampens as the market attains stability. At the same time, connectedness increases during periods of financial turmoil across all frequencies. We also document a change in the diversification role of precious metals during COVID-19.

Impact of the COVID-19 pandemic on return and risk transmission between oil and precious metals: Evidence from DCC-GARCH model.

It is frequently discussed in the literature that the correlation between low-correlation assets under ordinary market conditions may increase during crisis periods. To contribute to the ongoing debates, this paper empirically examines risk transmission between oil and precious metal markets induced by the COVID-19 pandemic using the DCC-GARCH model. The findings reveal evidence of a significant risk transmission between oil prices and precious metal prices, particularly during the onset of the COVID-19 pandemic. The findings point out that the negative relationship between oil and all precious metals returns in the pre-COVID-19 period has changed with the effect of the pandemic. In this process, it is revealed that the negative relationship between oil and gold has strengthened, but the negative relationship between oil and silver has weakened. In addition, the correlations between oil and platinum and palladium turn positive. The empirical findings imply that investors and portfolio managers seeking portfolio diversification and hedging opportunities in a high-risk environment such as the COVID-19 pandemic should consider gold and silver assets for investment.

Assessing the hedging potential of gold and other precious metals against uncertainty due to epidemics and pandemics.

We assess the hedging capabilities of four prominent precious metals namely gold, palladium, platinum and silver against market risks due to epidemics and pandemics. The research objective is informed by the COVID-19 pandemic which amplifies health risks with attendant concerns for financial markets. We utilize the health-related uncertainty index developed by Baker et al. (Equity market volatility: infectious disease tracker [INFECTDISEMVTRACK], 2020) which measures uncertainty in the financial markets due to infectious diseases including the COVID-19 pandemic and construct a predictive model that accommodates the salient features of both the predictand and predictor series. Our results support the safe haven property only for gold before and during the COVID-19 pandemic. We push the analysis further for in-sample and out-of-sample forecast evaluation and find that accounting for uncertainty due to infectious diseases improves the forecast of the four precious metals relative to the benchmark model (historical average). We highlight for investors that the gold market remains the safest market among the precious metals particularly during the COVID-19 pandemic.

The relationship between global stock and precious metals under Covid-19 and happiness perspectives.

In this paper, we examine the relationship between global stock markets, as respectively represented by the FTSE All-World Series and the MSCI Emerging Markets indexes, and the S&P GSCI Precious Metals index from 01 September 1999 to 03 May 2021. We employ the conditional correlation multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) to investigate this stock-precious metals nexus in terms of return and volatility spillovers. The study assesses impacts of the Covid-19 pandemic on the stock-precious metals nexus and further examine this relationship by supplementing the Twitter's Daily Happiness Sentiment index to the methodological framework for the period from 01 January 2020 to 03 May 2021. We find that precious metals positively influence stock markets before the Covid-19 outbreak and firmly play a valuable role due to their hedge and safe haven characteristics. In contrast, the bivariate GARCH framework does not provide statistically significant evidence on the stock-precious metals nexus during the Covid-19 pandemic. Meanwhile, the tri-variate GARCH approach with stock markets, precious metals, and happiness sentiment indexes reveals sufficiently complicated interactions between these return series. Prominently, past change in the happiness index negatively affects the stock returns but positively drives the performance of precious metals. These findings indirectly demonstrate the stock-precious metals nexus under impacts of the Covid-19 pandemic and reflect the demand of precious metals during crisis periods. Accordingly, we suggest a reasonable method of adjusting the proxies when no interaction effect is significantly found during unprecedented outbreaks.

On the stylized facts of precious metals’ volatility: A comparative analysis of pre- and during COVID-19 crisis

The main aim of this paper is to investigate the stylized facts associated with the volatility of precious metals before and during the COVID-19 pandemic using GARCH-type models. In particular, we employ an ARMA-GARCH, ARMA-EGARCH and ARMA-FIGARCH framework to account for volatility clustering, asymmetry and long memory in the volatility of gold, silver, platinum and palladium. Based on structural breaks, we divide the whole sample into sub-samples and find that the breakpoints occurred after the declaration of COVID-19 pandemic. Our results show a very distinct behaviour in the memory of the four metals before and during the crisis. While there is a moderate persistence in the full sample and in the pre-COVID-19 sub-period for the four metals, this effect vanishes after the crisis outburst. Positive asymmetric effects are also found in gold and silver volatilities, which intensify during COVID-19 phase. We ascribe this phenomenon to the hedge/safe-haven properties of these metals. By contrast, a diverse pattern is observed in the palladium and platinum volatilities, which display negative asymmetries before the pandemic, in tandem of financial markets. After the crisis, these metals show mixed evidence. Moreover, we argue that COVID-19 significantly affects the volatility of precious metals. © 2022 Elsevier B.V.

Multi-Frequency Information Flows between Global Commodities and Uncertainties: Evidence from COVID-19 Pandemic

Owing to the adverse impact of the COVID-19 pandemic on world economies, it is expected that information flows between commodities and uncertainties have been transformed. Accordingly, the resulting twisted risk among commodities and related uncertainties is presumed to rise during stressed market conditions. Therefore, investors feel pressured to find safe haven investments during the pandemic. For this reason, we model a mixture of asymmetric and non-linear bi-directional causality between global commodities and uncertainties at different frequencies through the information flow theory. Consequently, we utilise the complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN) and the Rényi effective transfer entropy techniques to establish the dynamic flow of information. The intrinsic mode functions (IMFs) from the CEEMDAN are carefully extracted into multi-frequencies through cluster analysis to reconstruct the series into high, medium, and low frequencies in addition to the residue. We utilise daily data from December 31st, 2019, to March 31st, 2021, to provide insights into the COVID-19 pandemic. The correlation coefficients and variances demonstrate that the high frequency (IMFs 1–4) which measures the short-term dynamics is the dominant frequency, suggesting short-lived market fluctuations relative to real economic growth for institutional investors. Moreover, outcomes from the multi-frequency entropy indicate a negative bi-directional causality of information flow between global commodities and uncertainties, especially in the long term. Generally, the findings present pertinent inferences for portfolio diversification, policy decisions, and risk management schemes for global commodities and markets volatilities. We, therefore, advocate that market volatilities act as effective hedges for global commodities, and they clearly act as balancing assets rather than substitutes in the long-term dynamics of the COVID-19 pandemic. Investors who delayed in investing within financial markets of commodities and market volatilities are likely to minimise their portfolio risks.

Investigating small, medium and micro-scale enterprises strategic planning techniques in Johannesburg central business district post-COVID-19 lockdown

Background: Strategic planning assists organisations to capitalise on opportunities that arise and to minimise the threats posed by unstable market environments. Apart from the track record of poor performance amongst some small, medium and micro-scale enterprises (SMMEs) in South Africa, COVID-19 pandemic severely affected more than 55 000 South African SMMEs in March 2020 after the lockdown imposed by the government. Aim: This research study sought to investigate strategic planning techniques or tools implemented by SMMEs post-COVID-19 lockdown in Johannesburg Central Business District (CBD). Setting: The study was conducted at small, medium and micro-enterprises in Johannesburg Central Business District. Methods: A quantitative study was conducted by using an online E-Survey Hero which was distributed to the sample of 169 respondents who were SMME owners and managers in Johannesburg CBD. Results: The results revealed that most SMMEs owners had knowledge on the strategic planning techniques such as the strengths, weaknesses, opportunities and threats (SWOT) analysis, the political, economic, social and technological (PEST) analysis, financial analysis of the competitors and financial analysis of their own business. Conclusion: Small, medium and micro-scale enterprises should take advantage of technology and invest in key skills needed for more effective strategic planning.