Is there an intraday volatility spillover between exchange rate, gold and crude oil?

Abstract

The study examines the intraday volatility spillover between the exchange rate, gold, and crude oil using the Dynamic Generalized Conditional Correlation GARCH model (DCC GARCH) and the BEKK GARCH model. We investigate the spillover effects using the Diebold and Yilmaz, 2012 model to gain a better understanding of the spillover effects between asset classes. We find that gold is the most effective transmitter of return spillover to the exchange rate and crude oil, whereas crude oil is the most effective receiver of spillover from other variables in the system. The study comes to the conclusion that volatility is a crucial component of the market for commodities derivatives and can influence transaction profitability, hedging efficiency, and overall market risk. Market participants need to keep an eye on volatility and modify their plans accordingly. The research is expected to play an important role in assisting investors, portfolio managers, and financial institutions in constructing an optimal portfolio and hedging strategy based on crude oil, gold, and foreign exchange.

Keywords

• DCC-GARCH
• Volatility spillover
• Commodity
• Intraday data
• Diebold-Yilmaz model