Volatility of Precious Metals: The Case of Platinum and Palladium

Abstract

This paper investigates the relationship between the returns and their volatilities for Platinum and Palladium, by applying the known long-memory Fractionally Integrated-GARCH models. The SKEWED-FIAPARCH (1,d,1)-C seems to be the most suitable for modeling the volatility of Platinum’s and Palladium’s returns since we find that the returns of both metals are persistent processes over time. Our analysis suggests that the volatility of one metal negatively affects the returns of the other metal, while positive spillovers exist between them. It is also apparent that the effect of the volatility of platinum returns on the volatility of palladium returns is greater.