Downside and upside risk spillovers between precious metals and currency markets: evidence from before and during the COVID-19 crisis

Abstract

This paper investigates the tail dependence dynamics and asymmetric risk spillovers between the futures of four important precious metals (gold, silver, platinum, and palladium) and seven leading currencies (EUR, GBP, JPY, CAD, AUD, CHF, and CNY) before and during the COVID-19 crisis using the time-varying-parameter copula and the conditional Value-at-Risk (CoVaR) method. The results show the symmetric dependence between currencies and precious metals before the COVID-19 crisis. In contrast, we show negative and positive tail asymmetric dependences during the pandemic crisis. The COVID-19 crisis significantly amplifies the magnitude of spillover effects among the studied markets where the AUD currency exhibits the largest transmission and reception of downside and upside spillover to/from most precious metals before and during the pandemic crisis. Currency investors and portfolio managers could use the obtained results to better hedge and manage their investment positions when markets are affected by health crises.