Research On Multi-scale Spillover Effect And Hedging Of Gold Market Based On Wavelet Analysis

Gold has good risk avoided ability.Many investors invest in gold to achieve the goal of reducing investment risk and asset preservation.Nevertheless,as a type of financial asset,gold will still be affected by various factors to generate price fluctuations that transmitted between markets.Therefore,knowing the relationship between China's gold market and other gold markets and analyzing its spillover characteristics are necessary.The results can be used by investors to manage risk and by regulators to maintain market stability.This thesis analyzes the multi-scale spillover effects and hedging between Shanghai and London,New York,Tokyo respectively.In the research of spillover effect,the wavelet is used to decompose the raw series.Based on the post-decomposition wavelet sequence,the GARCH model and the Granger causality in risk are used to investigate the volatility spillover and extreme risk spillover effects.In the hedging analysis,we calculated the time-varying and static hedging ratios based on the GARCH model and the wavelet correlation respectively.Then,we evaluate the effectiveness of the two hedging methods using variance reduction ratio.using the variance reduction ratio as an indicator.Next,we calculate the hedging ratio of gold futures in London,New York and Tokyo respectively based on the GARCH model that is more effective.Finally,we form hedging strategies.The empirical research shows that: London and New York are dominant in spillovers,and there are volatility and extreme risk spillovers on the Shanghai gold market at all scales.Overall,as the scale increases,the extreme risk spillover effect between markets increases significantly,but the volatility spillover effect does not show similar variation with scale.The dynamic hedging method based on GARCH model is more effective.In the case of using this method,considering the factors such as hedging effectiveness,hedging cost,and hedging portfolio risk,in the shorter scale,the Tokyo market gold futures should be used to hedge the gold assets in the Shanghai market,while in the medium and long scales,the New York gold futures should be selected.