Relationship between gold and stock markets during the global financial crisis: Evidence from nonlinear causality tests

By Taufiq Choudhry, Syed S. Hassan, Sarosh Shabi. 2015

194 citations recorded by the source corpus.

This paper investigates the nonlinear dynamic co-movements between gold returns, stock market returns and stock market volatility during the recent global financial crisis for the UK (FTSE 100), the US (SP both of these relationships are further investigated in the multivariate nonlinear settings by including changes in the three-month LIBOR rates. In this paper correlation integrals based on the bivariate model show significant evidence of nonlinear feedback effect among the variables during the financial crisis period for all the countries understudy. Very limited evidence of significant feedback is found during the pre-crisis period. Results from the multivariate tests including changes in the LIBOR rates provide results similar to the bivariate results. These results imply that gold may not perform well as a safe haven during the financial crisis period due to the bidirectional interdependence between gold returns and, stock returns as well as stock market volatility. However, gold may be used as a hedge against stock market returns and volatility in stable financial conditions.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c4c226a936f82a5db7be38e57e14c639255546a7

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In Economics and Econometrics

Citations in the corpus

A CNN–LSTM model for gold price time-series forecasting (2020, background): “Even when the ﬁnancial crisis swept across the entire world in 2008, gold price remained at a high point [3, 5, 29].”
Risk transmission between Islamic and conventional stock markets: A return and volatility spillover analysis (2017, unknown): “In line with, among others, Barth et al. (2009) and Choudhry et al. (2015), the start of the collapse of the sub-prime mortgage market in the U.S. during August 2007 is used as the beginning of the crisis period.”
The effects of uncertainty measures on the price of gold (2018, background): “The existing literature has shown that gold is considered as a useful tool to hedge against price risks of other financial instruments (Bredin et al., 2015; Choudhry et al., 2015; Ciner et al., 2013; Joy, 2011; Reboredo, 2013).”
Return connectedness across asset classes around the COVID-19 outbreak (2020, background): “For example, during economic and financial crisis periods, investors re-balance their portfolios by switching from risky assets to safe-haven assets in order to reduce the portfolio’s risk, which results into a "flight-to-quality" or "flight-to-safety" phenomenon that tends to decrease (increase) th”