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The Determinants Of A Simultaneous Crash In Gold And Stock Markets: An Ordered Logit Approach

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  • TAKASHI MIYAZAKI

    (Japan Center for Economic Research, Nikkei Inc. Bldg. 11F, 1-3-7 Otemachi, Chiyoda-ku, Tokyo 100-8066, Japan)

  • SHIGEYUKI HAMORI

    (#x2020;Graduate School of Economics, Kobe University, 2-1 Rokkodai, Nada-ku, Kobe 657-8501, Japan)

Abstract

In this study, we identify the determinants of a simultaneous crash in gold and stock markets by employing an ordered logit model. We find that a default spread, among the various financial risk indicators, is a valid determinant and that changes in investors’ beliefs, their uncertainties, and surprise changes in these uncertainties about gold and stock markets contain useful information for explaining the occurrence of a simultaneous crash in the two markets. Further, we recognize that the effect of some covariates on crash probability is state-dependent. In addition to these empirical results, a notable finding is that the occurrence of a crash in one market on a previous day does not raise the probability of the occurrence of a crash in another market the next day, implying that a joint crash occurs abruptly and not in a chain reaction. This finding reveals that diversification to gold is still beneficial to investors.

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  • Takashi Miyazaki & Shigeyuki Hamori, 2018. "The Determinants Of A Simultaneous Crash In Gold And Stock Markets: An Ordered Logit Approach," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 1-25, March.
    • Handle: RePEc:wsi:afexxx:v:13:y:2018:i:01:n:s2010495218500045
    DOI: 10.1142/S2010495218500045
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