Safe-haven and hedging roles of precious metals for BRICS and Turkey

Abstract

This paper investigates the role of precious metals in risk management (diversification, hedging, safe haven, leading and lagging roles) in the stock markets of BRICS-T (Brazil, Russia, India, China, South Africa, and Turkiye) countries using DCC-IGARCH-t-copula (Dynamic Conditional Correlation Integrated Generalized Autoregressive Conditional Heteroscedasticity - t-copula) and rolling Hong causality with daily data from the period 2015 to 2022. Our empirical findings indicate that, despite the existence of bidirectional variance causality, precious metals (gold, silver, platinum, and palladium) are effective risk management instruments, except for hedging. Moreover, to mitigate risk during the COVID-19 pandemic, investors should increase the weight in their portfolios of precious metals, except for gold. The leading role of precious metals in variance causality can help policy makers to design appropriate policies for curbing market vulnerability.