IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/56406.html
   My bibliography  Save this paper

Gold, Stock Price, Interest Rate and Exchange Rate Dynamics: An MS VAR Approach

Author

Listed:
  • Kal, Süleyman Hilmi
  • Arslaner, Ferhat
  • Arslaner, Nuran

Abstract

Holding on gold as an asset has been considered a traditional safe haven for risk averse investors even though holding gold has no yield other than capital asset, especially during the volatile economic periods. Under the Breton Woods agreement the exchange rate is fixed by agreement and the price of gold has become volatile and steadily has been increasing against all of the major currencies. In this study, it is investigated that whether the relationship between gold, interest rates, exchange rates and stock market yields vary depending gold oil ratio. A two state time varying transition probability Markov switching (MS) process to the vector auto regression (VAR) estimation of macro financial variables. The switching between the states of the Markov process is linked to the volatility of gold and the macro financial variables to understand the transition dynamics between states. Results indicate that the interrelationships between the macro financial variables and gold prices are state dependent and volatilities of the variables have a statistically significant effect on the transitional dynamics of gold prices between the states.

Suggested Citation

  • Kal, Süleyman Hilmi & Arslaner, Ferhat & Arslaner, Nuran, 2013. "Gold, Stock Price, Interest Rate and Exchange Rate Dynamics: An MS VAR Approach," MPRA Paper 56406, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:56406
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/56406/1/MPRA_paper_56406.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sjaastad, Larry A. & Scacciavillani, Fabio, 1996. "The price of gold and the exchange rate," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 879-897, December.
    2. Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
    3. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    4. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    5. Frommel, Michael & MacDonald, Ronald & Menkhoff, Lukas, 2005. "Markov switching regimes in a monetary exchange rate model," Economic Modelling, Elsevier, vol. 22(3), pages 485-502, May.
    6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    7. Goldfeld, Stephen M. & Quandt, Richard E., 1973. "A Markov model for switching regressions," Journal of Econometrics, Elsevier, vol. 1(1), pages 3-15, March.
    8. Davidson, Sinclair & Faff, Robert & Hillier, David, 2003. "Gold factor exposures in international asset pricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(3), pages 271-289, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kal, Süleyman Hilmi & Arslaner, Ferhat & Arslaner, Nuran, 2015. "The dynamic relationship between stock, bond and foreign exchange markets," Economic Systems, Elsevier, vol. 39(4), pages 592-607.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
    2. Doğan, İbrahim & Bilgili, Faik, 2014. "The non-linear impact of high and growing government external debt on economic growth: A Markov Regime-switching approach," Economic Modelling, Elsevier, vol. 39(C), pages 213-220.
    3. Kal, Süleyman Hilmi & Arslaner, Ferhat & Arslaner, Nuran, 2013. "Transitional Dynamics of Oil Prices," MPRA Paper 56407, University Library of Munich, Germany.
    4. Kal, Süleyman Hilmi & Arslaner, Ferhat & Arslaner, Nuran, 2015. "The dynamic relationship between stock, bond and foreign exchange markets," Economic Systems, Elsevier, vol. 39(4), pages 592-607.
    5. Dmitry Kulikov, 2012. "Testing for Rational Speculative Bubbles on the Estonian Stock Market," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 4(1).
    6. Nan Li & Simon S. Kwok, 2021. "Jointly determining the state dimension and lag order for Markov‐switching vector autoregressive models," Journal of Time Series Analysis, Wiley Blackwell, vol. 42(4), pages 471-491, July.
    7. Guglielmo Maria Caporale & Faek Menla Ali & Fabio Spagnolo & Nicola Spagnolo, 2015. "International Portfolio Flows and Exchange Rate Volatility for Emerging Markets," CESifo Working Paper Series 5615, CESifo.
    8. Maddalena Cavicchioli, 2021. "OLS Estimation of Markov switching VAR models: asymptotics and application to energy use," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 105(3), pages 431-449, September.
    9. Morana, Claudio, 2000. "Measuring core inflation in the euro area," Working Paper Series 36, European Central Bank.
    10. Carlo Altavilla & Paul De Grauwe, 2010. "Non-linearities in the relation between the exchange rate and its fundamentals," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 1-21.
    11. Chung-Ming Kuan, 2013. "Markov switching model (in Russian)," Quantile, Quantile, issue 11, pages 13-40, December.
    12. Uctum, Remzi, 2007. "Économétrie des modèles à changement de régimes : un essai de synthèse," L'Actualité Economique, Société Canadienne de Science Economique, vol. 83(4), pages 447-482, décembre.
    13. Hutchison, Michael M. & Sengupta, Rajeswari & Singh, Nirvikar, 2013. "Dove or Hawk? Characterizing monetary policy regime switches in India," Emerging Markets Review, Elsevier, vol. 16(C), pages 183-202.
    14. Liu, Wen-Hsien & Chung, Ching-Fan & Chang, Kuang-Liang, 2013. "Inventory change, capacity utilization and the semiconductor industry cycle," Economic Modelling, Elsevier, vol. 31(C), pages 119-127.
    15. Lopes, José Mário & Nunes, Luis C., 2012. "A Markov regime switching model of crises and contagion: The case of the Iberian countries in the EMS," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 1141-1153.
    16. Morana, Claudio, 2000. "Measuring core inflation in the euro area," Working Paper Series 0036, European Central Bank.
    17. Ana Oliveira-Brochado & Francisco Vitorino Martins, 2008. "Segmentação de Mercado e modelos mistura de regressão para variáveis normais," FEP Working Papers 262, Universidade do Porto, Faculdade de Economia do Porto.
    18. Hamilton, James D., 1996. "Specification testing in Markov-switching time-series models," Journal of Econometrics, Elsevier, vol. 70(1), pages 127-157, January.
    19. Yuan, Chunming, 2011. "The exchange rate and macroeconomic determinants: Time-varying transitional dynamics," The North American Journal of Economics and Finance, Elsevier, vol. 22(2), pages 197-220, August.
    20. Battulga Gankhuu, 2022. "Augmented Dynamic Gordon Growth Model," Papers 2201.06012, arXiv.org, revised Aug 2023.

    More about this item

    Keywords

    Gold Price; Gold Oil Ratio; Stock Price; Interest Rates; Exchange Rates; Time Series Analysis; Markov Switching Regimes;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:56406. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.