The implied convenience yield of precious metals: safe haven versus industrial usage

Chng, Michael T. and Foster, Grant 2012, The implied convenience yield of precious metals: safe haven versus industrial usage, Review of futures markets, vol. 20, no. 4, pp. 349-394.

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Title The implied convenience yield of precious metals: safe haven versus industrial usage
Author(s) Chng, Michael T.
Foster, Grant
Journal name Review of futures markets
Volume number 20
Issue number 4
Start page 349
End page 394
Total pages 45
Publisher Institute for Financial Markets
Place of publication Washington, D. C.
Publication date 2012
ISSN 0898-011X
Keyword(s) precious metals
convenience yields
Summary During a financial crisis, investors find it convenient to hold gold (Gd) as a safe haven. But during good economic times, manufacturing firms find it convenient to stockpile platinum (Pl), palladium (Pd) and especially silver (Si), for industrial usages. We have three related objectives. First, we examine the nature of cross-market interactions among the convenience yields (cyit) of {Gd, Pl, Pd, Si}, which are implied from cost-of-carry relations. Second, we test if the more influential cyit of certain precious metals are also affecting the return, volatility and/or volume dynamics of other precious metals. Third, we analyze if the cyit of gold is enhanced (diluted) during (after) the Asian and Global financial crises. We find, consistent with our propositions, that during crisis period, gold’s cyit provides incremental information to the volatility series of {Gd, Pl, Pd, Si}. But during good economic times, it is silver’s cyit that has the most influence on the return series across {Gd, Pl, Pd, Si}. This is not surprising given that Si has the largest proportion of industrial usage among the four metals.
Language eng
Field of Research 150205 Investment and Risk Management
Socio Economic Objective 900199 Financial Services not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2012, Institute for Financial Matters
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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