Cross-correlations between economic policy uncertainty and precious and industrial metals: A multifractal cross-correlation analysis. (March 2022)

• Record Type: Journal Article
• Authors: Aslam, Faheem; Zil-e-huma, ; Bibi, Rashida; Ferreira, Paulo
• Is Part Of: Resources policy. Volume 75(2022)
• Publication Date: 2022-03
• Subjects: Metals -- Economic policy uncertainty -- MFCCA -- Cross-correlation -- Hurst exponent; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2021.102473
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: This study combines Seasonal-Trend decomposition using LOESS (STL) and multifractal cross-correlation analysis (MFCCA) to estimate the cross-correlations between the evolution of the economic policy uncertainty (EPU) of the USA and return of precious and industrial metals. Based on daily closing values of EPU and eight metals ranging from 01-Jan-2010 to 02-May-2021, the empirical findings confirm the presence of nonlinear dependencies, based on all EPU-Metal relationships, suggesting that EPU and metal markets are interlinked. Furthermore, there is evidence of multifractality, although with a varying degree, between EPU and metal markets. The strongest multifractality is found in EPU-Tin and EPU-Silver, while EPU-Platinum and EPU-Gold exhibit the weakest multifractality. Precious metals show persistent cross-correlations while industrial metals have anti-persistent cross-correlations with EPU, with that cross-correlation behavior being more persistent in the case of small fluctuations, which have different implications for the different market agents. Highlights: With MFCCA we asses cross-correlations between uncertainty and metals. We use economic policy uncertainty (EPU) and prices of eight metals. Results confirm the presence of nonlinear dependencies and multifractality. The degree of multifractality varies for the different metals.