CONDITIONAL DEPENDENCE STRUCTURE IN THE PRECIOUS METALS FUTURES MARKET

Małgorzata Just; Aleksandra Łuczak; Agnieszka Kozera

doi:10.20472/ES.2019.8.1.006

Authors

Małgorzata Just Poznań University of Life Sciences, Faculty of Economics and Social Sciences, Poland Author
Aleksandra Łuczak Poznań University of Life Sciences, Faculty of Economics and Social Sciences, Poland Author
Agnieszka Kozera Poznań University of Life Sciences, Faculty of Economics and Social Sciences, Poland Author

DOI:

https://doi.org/10.20472/ES.2019.8.1.006

Keywords:

Precious metals, Copula-GARCH, Dynamic dependencies, Kendall's tau coefficient, Tail dependence, Market states, Fuzzy clustering method

Abstract

The purpose of this paper is to assess the conditional dependence structure in the precious metals futures market over the period from the beginning of 2000 to mid-2018. This time frame corresponds to periods of large fluctuations in quoted contract prices during the financial crisis. Dynamic Kendall’s tau coefficients and dynamic tail dependence coefficients are used to evaluate the strength and dynamics of the relationship between returns on precious metals futures prices. These coefficients are estimated using copula-based multivariate GARCH models, while daily changes in the conditional dependence structure (i.e., changes in market states) are identified using the fuzzy c-means clustering method. The results indicate that the conditional dependence structure in the precious metals futures market varies over time, as confirmed by three identified market states. Among the analyzed contracts, gold and silver futures exhibit the strongest interrelationship and a relatively high probability of extreme events being transmitted between them.

Data:
Received: 16 Mar 2019
Revised: 5 May 2019
Accepted: 6 Jun 2019
Published: 20 Jun 2019