TESTING THE VOLATILITY TRANSMISSION AMONG THE PRECIOUS METAL ETFS AND FUTURES
Jo-Hui Chen, Do Thi Van Trang
Pages: 16-31 Published: 22 Aug 2017
Views: 1,133 Downloads: 551
Abstract: In this study, multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) models are applied to examine conditional correlations and to analyze the robust check for the volatility spillovers between the precious metal (base metal) exchange-traded funds (ETFs) and futures indices. Three different MGARCH models, namely, the Baba, Engle, Kraft, and Kroner (BEKK), the constant conditional correlation, and the dynamic conditional correlation models, are utilized and compared. BEKK is recognized to fit data the best, and it represents long-run persistence. The shocks on the volatility of the precious (base) metal ETFs may affect their futures contracts through a long-time range. Significance results indicate the lagged covariances and cross-products of the shocks. Therefore, the volatilities of the precious metal (base metal) ETF returns influence their futures returns. This finding suggests that investors and traders should consider the return volatility trends of the precious metal (base metal) ETFs when studying the volatility of their futures market.
Keywords: precious metal etf, base metal etf, futures indexes, volatility dynamics, mgacrh model