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Exploring the dynamic interdependence between gold and other financial markets

Author

Listed:
  • Takashi Miyazaki

    () (Kobe University)

  • Yuki Toyoshima

    () (Kobe University)

  • Shigeyuki Hamori

    () (Kobe University)

Abstract

In 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.

Suggested Citation

  • Takashi Miyazaki & Yuki Toyoshima & Shigeyuki Hamori, 2012. "Exploring the dynamic interdependence between gold and other financial markets," Economics Bulletin, AccessEcon, vol. 32(1), pages 37-50.
  • Handle: RePEc:ebl:ecbull:eb-11-00754
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P5.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Choudhry, Taufiq & Hassan, Syed S. & Shabi, Sarosh, 2015. "Relationship between gold and stock markets during the global financial crisis: Evidence from nonlinear causality tests," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 247-256.
    2. Jamal Bouoiyour & Refk Selmi & Mark Wohar, 2018. "Measuring the response of gold prices to uncertainty: An analysis beyond the mean," Papers 1806.07623, arXiv.org.
    3. Muhammad Mansoor Baig & Muhammad Shahbaz & Muhammad Imran & Mehwish Jabbar & Qurat Ul Ain, 2013. "Relationship between Gold and Oil Prices and Stock Market Returns," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 9(5), pages 28-39, October.
    4. Reboredo, Juan C., 2013. "Is gold a safe haven or a hedge for the US dollar? Implications for risk management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2665-2676.
    5. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Can gold hedge and preserve value when the US dollar depreciates?," Economic Modelling, Elsevier, vol. 39(C), pages 168-173.
    6. repec:taf:applec:v:48:y:2016:i:46:p:4419-4425 is not listed on IDEAS
    7. Walid Chkili, 2015. "Gold–oil prices co-movements and portfolio diversification implications," Economics Bulletin, AccessEcon, vol. 35(4), pages 2832-2845.
    8. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Gold and exchange rates: Downside risk and hedging at different investment horizons," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 267-279.
    9. Chkili, Walid, 2016. "Dynamic correlations and hedging effectiveness between gold and stock markets: Evidence for BRICS countries," Research in International Business and Finance, Elsevier, vol. 38(C), pages 22-34.
    10. Chkili, Walid, 2015. "Gold-oil prices co-movements and portfolio diversification implications," MPRA Paper 68110, University Library of Munich, Germany.

    More about this item

    Keywords

    Gold market; Stock market; Bond market; Foreign exchange market; Interdependence; Asymmetric dynamic conditional correlation model; Flight to quality; Hedge; Safe haven;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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