This paper examines the inclusion of the dollar/euro exchange rate together with four
important and highly traded commodities - aluminum, copper, gold and oil- in symmetric
and asymmetric multivariate GARCH and DCC models. The inclusion of exchange rate
increases the significant direct and indirect past shock and volatility effects on future
volatility between the commodities in all the models. Model 2, which includes the
business cycle industrial metal copper and not aluminum, displays more direct and
indirect transmissions than does Model 3, which replaces the business cycle-sensitive
copper with the highly energy-intensive aluminum. The asymmetric effects are the
greatest in Model 3 because of the high interactions between oil and aluminum. Optimal
portfolios should have more euro currency than commodities, and more copper and gold
than oil.
|