CRUDE OIL HEDGING WITH PRECIOUS METALS: A DCC-GARCH APPROACH

The objective of this study is to investigate the dynamic relationship between crude oil and precious metals by employing DCC-GARCH model. The correlation structure obtained from the DCC-GARCH model is used to construct hedging ratios and portfolio weights. The analysis is repeated with ADCC-GARCH to check the robustness of the findings. The results of this study can be summarized as follows: First, there exists a dynamic conditional correlation between crude oil and precious metals. Second, on an average, the dynamic correlation between crude oil and precious metals increased with the advent of recent financial crisis till the effect of the crises subsided. Third, DCC results between crude oil and precious metals suggest that, precious metals seem to behave as a single asset class during the periods of uncertain outcome. Fourth, silver and palladium exhibit better hedging capability than gold.