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Understanding Dynamic Relationship among Gold Price, Exchange Rate and Stock Markets: Evidence in Indian Context

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  • Atul Shiva
  • Monica Sethi

Abstract

The purpose of research in this article is to investigate the relationship among gold prices, Bombay Stock Exchange’s Sensex, National Stock Exchange’s Standard and Poor’s (S&P) Financial Services LLC CNX NIFTY 1 (S&P CNX NIFTY) and US dollar/Indian rupee (USD/INR) exchange rate for the period January 1998–April 2014. The relationship among these variables has been studied by applying vector error correction model (VECM) in order to check the long-run and short-run causality. Johansen cointegration test has been applied to find out the long-term cointegration among variables in the study. In further analysis, Wald’s coefficient diagnosis and residual analysis revealed that gold prices, SENSEX, USD/INR and S&P CNX NIFTY are in equilibrium in the short run and long run. Granger causality test finally confirms the presence of unidirectional causality that runs from gold prices to S&P CNX NIFTY and also from gold prices to USD/INR exchange rate at current prices.

Suggested Citation

  • Atul Shiva & Monica Sethi, 2015. "Understanding Dynamic Relationship among Gold Price, Exchange Rate and Stock Markets: Evidence in Indian Context," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 93-111, October.
    • Handle: RePEc:sae:globus:v:16:y:2015:i:5_suppl:p:93s-111s
    DOI: 10.1177/0972150915601257
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    References listed on IDEAS

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