Gold and Sustainable Stocks in the US and EU: Nonlinear Analysis Based on Multifractal Detrended Cross-Correlation Analysis and Granger Causality

Abstract

Geopolitical risks and conflicts wield substantial influence on the global economy and financial markets, fostering uncertainty and volatility. This study investigates the intricate relationship between gold and representatives of green and sustainable stocks in the US and EU during the Russia-Ukraine conflict, employing multifractal detrended cross-correlation analysis (MF-DCCA) and nonlinear Granger causality. MF-DCCA reveals significant multifractal properties and nonlinear cross-correlations across all time series pairs. Notably, conflict weakened the multifractal cross-correlations between US stocks and gold, except for the TESLA/gold pair. A similar significant change in the EU market’s multifractal properties was observed during the conflict. In conjunction with MF-DCCA, Granger causality tests indicate bidirectional nonlinear relationships between gold and green/sustainable stock markets in the USA and EU. Gold’s past movements significantly influence changes in all the considered green and sustainable stocks, enabling predictions of their behavior. These findings shed light on multifractal dynamics during geopolitical crises and emphasize the bidirectional relationships between gold and green and sustainable stock markets. This comprehensive analysis informs investors and policy makers, enhancing their understanding of financial market behavior amid geopolitical instability.

Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

“…We use the econophysicsbased MFDCCA, which was first presented by [63], to look into cross correlations between the commodity market indices and the FSI. When it comes to finding nonlinear relationships, which linear approaches frequently fail to reveal, MFDCCA is a better option [64,65]. Thirdly, by applying the rolling windows approach, this study, grounded on the perspective of the commodity market, provides a more thorough understanding of that market's dynamics over time.…”