Journal
ENERGY ECONOMICS
Volume 73, Issue -, Pages 108-121Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.eneco.2018.05.024
Keywords
Oil; Precious metal; Demand and supply shocks; VAR; Markov regime switching regression
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Funding
- Jan Wallander and Tom Hedelius Foundation
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This paper examines the nonlinear effect of oil price shocks on precious metal returns using Markov regime switching regression. We use Ready's (2018) approach to decompose oil price changes into supply, demand, and risk driven shocks. Results indicate a significant positive impact of demand and supply shocks and a negative impact of risk shocks on precious metal returns. Although we find evidence of switching between low and high volatility regimes, we do not find strong regime effect on supply or demand shocks' contemporaneous relationship with precious metal returns. However, risk shocks' influence on precious metal returns is strongly regime dependent. These results generally hold for different distributional specification of error terms. (C) 2018 Elsevier B.V. All rights reserved.
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