Exploring the dynamic interdependence between gold and other financial markets
AbstractIn this article, we explore the dynamic interdependence between gold and other financial markets by using an asymmetric dynamic conditional correlation model. The asymmetry in the dynamic conditional correlation is not recognized in many pair-wise assets and complimentary asymmetry is recognized only between gold and the euro/US dollar. In addition, we demonstrate that a structural break has occurred in the dynamic conditional correlation for the pair of gold and S&P500 index after the Lehman Brothers bankruptcy. Furthermore, we find evidence that although gold works as a safe haven in times of a stock market crash, its function is limited in the long run. We also show that the volatility index has a marginally significant explanatory power as the driving force behind the dynamic correlation between gold and the S&P500 index. This finding could be interpreted as a result of the flight to quality for gold through the recent financial turmoil.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 32 (2012)
Issue (Month): 1 ()
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Gold market; Stock market; Bond market; Foreign exchange market; Interdependence; Asymmetric dynamic conditional correlation model; Flight to quality; Hedge; Safe haven;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
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