Economic Policy Uncertainty Effect on Precious Metal Markets: A Markov-Switching Model with Mixture Distribution Regimes

Sukrit Thongkairat, Woraphon Yamaka, Songsak Sriboonchitta

Abstract

This paper examines the effect of economic policy uncertainty (EPU) on three precious metal markets (Gold, Silver, Platinum) using a Markov-switching model with mixture distribution regimes. Thirty six model specifications for each market are introduced here and the best model for each market is used for interpretation. Our results can be divided into two parts. First, we can confirm the persistence of the relationship between the economic policy uncertainty and the return of precious metal market. Second, as we doubt whether the regime in the model has a different distribution, the results confirm the existence of different distribution regime in the model. Thus, we can confirm different distribution characteristics between high and low economic uncertainty periods in precious metal markets.