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Supply and demand driven oil price changes and their non-linear impact on precious metal returns: A Markov regime switching approach
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.
Univ Newcastle, Australia.
Montpellier Business Sch, France.
Shaheed Zulfigar Ali Bhutto Inst Sci and Technol, Pakistan.
2018 (English)In: Energy Economics, ISSN 0140-9883, E-ISSN 1873-6181, Vol. 73, p. 108-121Article in journal (Refereed) Published
Abstract [en]

This paper examines the nonlinear effect of oil price shocks on precious metal returns using Markov regime switching regression. We use Readys (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.

Place, publisher, year, edition, pages
ELSEVIER SCIENCE BV , 2018. Vol. 73, p. 108-121
Keywords [en]
Oil; Precious metal; Demand and supply shocks; VAR; Markov regime switching regression
National Category
Economics
Identifiers
URN: urn:nbn:se:liu:diva-149876DOI: 10.1016/j.eneco.2018.05.024ISI: 000438000600008OAI: oai:DiVA.org:liu-149876DiVA, id: diva2:1236415
Note

Funding Agencies|Jan Wallander and Tom Hedelius Foundation

Available from: 2018-08-02 Created: 2018-08-02 Last updated: 2018-08-02

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