Abstract
AbstractThis paper examines long‐run dependence and causality between oil and precious metal (gold, silver, platinum, palladium, steel, and titanium) prices across quantiles by exploiting their time series properties with the help of novel econometric techniques. The empirical results for the period 1990–2019 indicate that oil and metal prices are nonstationary across different quantiles and that cointegration patterns differ widely across quantiles. Causality running from oil to metal prices is quantile‐dependent and differs according to the metal, whereas upward and downward movements in metal prices have no causal effect on oil prices. These results have implications for investors and policymakers in terms of portfolio and risk management decisions.
Highlights
Oil and precious metal markets are inextricably related through economic and financial channels
With the use of the quantile autoregressive unit root test as proposed by Galvao (2009), the Kuriyama (2016) quantile cointegration test, and the Granger-causality in quantiles test introduced by Troster (2018), we find that oil price is cointegrated with the different metal prices and that these relationships vary widely in distributional structure across quantiles and shows no specific patterns for the different metalcrude oil prices pairs
The crude oil price is paired with each metal price and each pair of variables is tested for long-run equilibrium, and Granger causality to gauge the direction of information spillover between the respective markets
Summary
Oil and precious metal markets are inextricably related through economic and financial channels. Surges in oil prices typically trigger inflationary pressures, raise growth concerns, and impact stock prices. This worries investors and they resort to precious metals— gold—to protect the real value of investments by managing portfolio risk. Oil price oscillations modify the composition of the international reserve portfolios of oil-exporting countries, which typically use gold and other precious metals to manage their portfolio risk. Understanding oil price oscillations and causal effects between oil and precious metal prices is of interest to producers, to investors and to policy makers. The investors are interested because they are concerned about their portfolio composition and risk management of their portfolios and the policymakers are interested because they use precious metals as a store of wealth
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