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Cross-market linkages between U.S. and Japanese precious metals futures trading. 2005.

by on February 14, 2014

This article looks at the process of price discovery for three precious metals (Gold, Silver and Platinum) between the US and Japanese Market. This is done through looking at daily day and also on an intraday basis at their returns and volatility.

The main finding is that while there are return spillovers in both directions between the markets, the US is by far the more dominant. US gold returns effects returns on TOCOM 6 times more than Japanese returns effects the US. The pattern is even more pronounced for Silver (36 times) and is weaker for Platinum (2 times). For volatility the relationship between the markets is more symmetric.

These findings are particularly interesting as the trading days for TOCOM and COMES/NYMEX do not overlap, allowing the authors to look at closing prices from on effecting opening prices for the other.

Data: Daily and intraday from: COMEX gold & silver, NYMEX Platinum and TOCOM Gold, Silver and Platinum. November 1994 – March 2001.

Methodology: Bivariate Asymmetric ARMA GARCH and Seemingly Unrelated Regressions (SUR’s)

Citation: Xu, Xiaoqing Eleanor, and Hung-Gay Fung. “Cross-market linkages between US and Japanese precious metals futures trading.” Journal of International Financial Markets, Institutions and Money 15.2 (2005): 107-124.

Abstract: We use a bivariate asymmetric GARCH model to examine patterns of across-market information flows for gold, platinum, and silver futures contracts traded in both the U.S. and Japanese markets. Our results indicate that pricing transmissions for these precious metals contracts are strong across the two markets, but information flows appear to lead from the U.S. market to the Japanese market in terms of returns. There are strong volatility spillover feedback effects across both markets, and their impacts appear to be comparable and similar. There is evidence that intraday pricing information transmission across the two precious metals futures markets is rapid, as offshore trading information can be absorbed in the domestic market within a trading day.

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From → Gold, PGMs, Silver

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