News-based uncertainty measures and returns on prices of precious metals: evidence from regime switching and time-varying causality approach

Abstract

Purpose

The study aims to examine the relationship among economic policy uncertainty (EPU), geopolitical-risks (GPR), the interaction (EPGR) of EPU and GPR and the returns of gold, silver, platinum, palladium and rhodium using monthly data from January (1997) to May (2021).

Design/methodology/approach

The paper employs the Markov-switching and the novel Shi et al. (2020) bootstrap time-varying Granger-causality approach.

Findings

Though the Markov-switching shows variation in the responses of precious metals to EPU, GPR and EPGR across low and high states, the paper observes the safe-haven potential of the precious metals in the high regime while the hedging potency is also evident in the results. To further substantiate the safe-haven and hedging properties, the time-varying Granger-causality shows the causal effect of EPU on all the selected precious metal returns coinciding with global events. While the authors show that GPR Granger causes platinum, palladium and rhodium consistently under the rolling/recursive-evolving tests, the authors cannot find the causal effect of GPR on gold and silver returns across the algorithms. The paper also observes persistence in the causal effect of EPGR on palladium and platinum across all the algorithms, while gold and rhodium only show consistency in the responses under the rolling- and recursive-evolving algorithms given the conditions of homoscedasticity and heteroscedasticity.

Practical implications

The authors' results are essential to investors and policymakers since both typically leverage the hedging and safe-haven characteristics of precious metals to obviate downside risks during highly uncertain periods.

Originality/value

The authors' techniques allow examining the hedging and safe-haven properties of precious metals across regimes and date-stamp critical periods of causation inherent in the relationship.

Citation

Adeosun, O.A., Adeosun, O.A., Tabash, M.I. and Anagreh, S. (2023), "News-based uncertainty measures and returns on prices of precious metals: evidence from regime switching and time-varying causality approach", Journal of Economic Studies, Vol. 50 No. 2, pp. 173-200. https://doi.org/10.1108/JES-11-2021-0558