Spillovers and portfolio optimization of precious metals and global/regional equity markets

ABSTRACT

We examine the spillovers and resource allocation characteristics of a portfolio of precious metal commodities and global/regional equity markets using a directional spillover index and portfolio optimization methods. Spillover index results show that the largest spillovers among precious metals occur between gold and silver and between zinc and lead. The largest spillovers of the world, Americas, Europe and Asia Pacific equity indices are on palladium and copper. Copper and zinc most largely spillover on the world and Americas equity indices. Copper and lead most largely spillover on the Europe equity index, while copper and silver most largely spillover on the Asia Pacific equity index. Portfolio optimization results indicate that nickel and lead add the most risk to total portfolio risk, whereas gold, platinum and aluminium add the least risk to the portfolio of commodities. Gold and aluminium are the precious metals most desirable for investment.

KEYWORDS:

• Precious metal commodities
• stock markets
• interdependence
• spillover index
• portfolio optimization

JEL CLASSIFICATION:

• C58
• F36
• G11
• G21
• R10

Acknowledgments

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2020S1A5B8103268).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ For an excellent review of early literature on the relationship among prices of several precious metals, see O’Connor et al. (2015) and Vigne et al. (2017).

² See Ardia et al. (2011) for further details.

³ We present the estimations of the multivariate DECO model in Appendix.

Additional information

Funding

This work was supported by the National Research Foundation of Korea [NRF-2020S1A5B8103268].