International Journal of Applied Business and Economic Research, Vol. 9, No. 2, (2011): 145-165
STUDY ON DYNAMIC RELATIONSHIP AMONG GOLD PRICE, OIL PRICE, EXCHANGE RATE AND STOCK MARKET RETURNS
K. S. Sujit1 and B. Rajesh Kumar2
Abstract: The dynamic and complex relationship among economic variables has attracted the researchers, policy makers and business people alike. This study is an attempt to test the dynamic relationship among gold price, stock returns, exchange rate and oil price. All these variables have witnessed significant changes over time and hence, it is absolutely necessary to validate the relationship periodically. This study takes daily data from 2nd January 1998 to 5th June 2011, constituting 3485 observations. Using techniques of time series the study tried to capture dynamic and stable relationship among these variables using vector autoregressive and cointegration technique. The results show that exchange rate is highly affected by changes in other variables. However, stock market has fewer roles in affecting the exchange rate. In this study we tested two models and one model suggests that there is weak long term relationship among variables. JEL classification: C22; E3; Keywords: Unit root tests; granger causality test, Cointegration; Vector auto regression (VAR)
Gold was one of the first metals humans excavated. Gold as an asset has a hybrid nature: it is a commodity used in many industries but also it has maintained throughout history a unique function as a means of exchange and a store of value, which makes it akin to money. After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency...