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

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 NIFTY1 (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.

The Effects of Life Expectancy and Financial Crisis on the Stock Market Development in Africa

“…Similarly, Ali and Afzal (2012) affirm that the inflow of net capital from developed to emerging economies recorded a sharp decline from the beginning of the financial crisis. The evidence is in line with the Shiva and Sethi (2015) conclusion that financial markets are getting more integrated with attendant spill-over effect during a crisis period.…”

Gold-oil-exchange rate volatility, Bombay stock exchange and global financial contagion 2008: Application of NARDL model with dynamic multipliers for evidences beyond symmetry

“…This research is also relevant for academicians to consider the period while finding out possible linkages between stock indexes, oil prices, gold prices, and exchange rate fluctuations. Another theoretical contribution is added to existing literature that there is the asymmetrical or nonlinear association between variables which are assumed to be linear by (Sahu et al, 2014;Shiva & Sethi, 2015;Tehreem, 2018;Keswani & Wadhwa, 2018;Neveen, 2018;Rajesh, 2019). Moreover, in existing literature few researchers have utilized arbitrage pricing theory to explain symmetrical connotations between macroeconomic fluctuations and stock indexes (Christofi et al, 1993;Günsel et al, 2009;Mollick & Nguyen, 2015;Saumya, 2012;Shahzad et al, 2017;Yan & Yang, 2016) while others have utilized EMH (Wickremasinghe, 2011;Hatemi-J, 2012;Singhania & Prakash, 2014;Othman et al, 2019).…”

“…We have identified the following four most important research gaps in the existing literature. Firstly, in existing literature number of research articles have only explored linear linkages between stock indexes, exchange rate fluctuations, oil price volatilities, and gold prices by utilizing linear models like VECM (Badry, 2019;Keswani & Wadhwa, 2018;Neveen, 2018;Rajesh, 2019;Sahu et al, 2014;Shiva & Sethi, 2015), VAR (Areli Bermudez Delgado et al, 2018;Ghulam, 2018;Huang et al, 2018), ARDL modeling approach (Ho, 2018;Singhal et al, 2019) and limited efforts have been made to explore the asymmetrical impact of Exchange rates-Gold-Oil price volatility on stock indexes by using NARDL model by (Shin et al, 2014).…”

Return and Volatility Spillover among Commodity Futures, Stock Market and Exchange Rate: Evidence from India

“…Recently, Adrangi, Chatrath, David-Christie, and Maitra (2014) studied the market co-movements among equity, commodity and exchange rates and found a very weak relationship between equity and commodity in India. Shiva and Sethi (2015) studied the dynamic relationship among gold prices, exchange rate and stock markets and found that gold prices unidirectional causes stock markets and exchange rates. In a study in a different context, Chakrabarty, De, and Bandyopadhyay (2015) applied wavelet based DCC-GARCH method in which they have shown that volatility spillover changes with the change of investment horizon.…”