Supply and demand driven oil price changes and their non-linear impact on precious metal returns: A Markov regime switching approach

Uddin, Gazi Salah; Rahman, Md Lutfur; Shahzad, Syed Jawad Hussain; Rehman, Mobeen Ur

Abstract

This paper examines the nonlinear effect of oil price shocks on precious metal returns using Markov regime switching regression. We use Ready's (2018) approach to decompose oil price changes into supply, demand, and risk driven shocks. Results indicate a significant positive impact of demand and supply shocks and a negative impact of risk shocks on precious metal returns. Although we find evidence of switching between low and high volatility regimes, we do not find strong regime effect on supply or demand shocks' contemporaneous relationship with precious metal returns. However, risk shocks' influence on precious metal returns is strongly regime dependent. These results generally hold for different distributional specification of error terms.

Citation

Uddin, G. S., Rahman, M. L., Shahzad, S. J. H., & Rehman, M. U. (2025). Supply and demand driven oil price changes and their non-linear impact on precious metal returns: A Markov regime switching approach. Energy Economics, 73, 108-121. https://doi.org/10.1016/j.eneco.2018.05.024

• Journal Article Type: Article
• Acceptance Date: May 17, 2018
• Online Publication Date: May 19, 2018
• Publication Date: Jun 19, 2025
• Deposit Date: Jan 15, 2025
• Journal: Energy Economics
• Print ISSN: 0140-9883
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 73
• Pages: 108-121
• DOI: https://doi.org/10.1016/j.eneco.2018.05.024
• Keywords: Oil; Precious metal; Demand and supply shocks; VAR; Markov regime switching regression
• Public URL: https://keele-repository.worktribe.com/output/1044368
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0140988318301919?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: Supply and demand driven oil price changes and their non-linear impact on precious metal returns: A Markov regime switching approach; Journal Title: Energy Economics; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.eneco.2018.05.024; Content Type: article; Copyright: © 2018 Elsevier B.V. All rights reserved.