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 was to assess the conditional dependence structure in the precious metals futures market in the period spanning from the beginning of 2000 to mid 2018. These time frames correspond to large fluctuations of quoted contract prices during the financial crisis. The dynamic Kendall’s tau coefficients and the dynamic tail dependence coefficients were used to assess the strength and dynamics of the nexus between rates of return on quoted prices of precious metals futures contracts. The coefficients were determined using the copula-based multivariate GARCH models, whereas the daily changes in the conditional dependence structure (changes in market state) were identified with the fuzzy c-means clustering method. In the study period, the conditional dependence structure in the precious metals futures market changed over time, as confirmed by the three identified market states. Of the contracts considered, gold and silver futures contracts demonstrated the strongest interrelationship and a relatively high likelihood of extreme events being transferred between them.

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