Cross-Market Volatility Interactions: Strategic Implications for Crude Oil, Gold, and Currency Markets

Abstract

Intraday volatility spillover is studied by using the Dynamic Generalized Conditional Correlation GARCH model (DCC GARCH) and the BEKK GARCH model. These three variables are the exchange rate, gold, and crude oil. Using the model developed we investigate the consequences of spillovers across asset classes. According to our findings, crude oil is the best "spillover receiver," meaning it benefits most when other variables in the system change, while gold is the best "spillover transmitter," meaning it benefits most when the exchange rate and crude oil change. The research concludes that volatility plays a substantial role in the market for commodities derivatives, and that this involvement may impact the profitability of transactions, the efficacy of hedging, and the overall risk in the market. Market participants need to keep an eye on volatility and make adjustments to their tactics accordingly. Investors, portfolio managers, and financial institutions may gain a great deal from the research by using it to construct an optimal portfolio and hedging plan based on crude oil, gold, and foreign currency.