No abstract

In recent years, uncertainty in financial markets has stimulated the need to explore alternative avenues for safeguarding wealth and managing risk. In this strand of research, gold has been particularly important due to its potential to mitigate risk and preserve wealth. This study investigates gold behaviour against equities and currencies in three regions across Asia. We follow Engle’s (2002) dynamic conditional correlation-multivariate generalized autoregressive conditional heteroscedasticity (DCC-MGARCH) model to test the gold link with equity and currency markets. We use a weekly series of exchange rate (national currency/the US dollar), equity and gold prices in national currency over the weekly period, 1995–2013. The sample consists of 12 countries covering East Asia, South Asia and Southeast Asia. Findings suggest that gold is just a diversifier against stocks in the Asian economies except in Korea, Singapore and Thailand. However, gold acts as a hedge and safe haven against Asian currencies—except China and Hong Kong—thus still preserving its monetary role.

The paper examines the impact of economic integration on the relationship between the currency and equity markets for a group of Asian emerging economies using both linear and non-linear frameworks. We first derive the dynamic conditional correlations between the two markets and then examine the impact of economic integration on their relationship. Our main results are:(a) there is a negative correlation between real exchange rate changes and equity return differentials for all countries apart from China, which becomes deeper during the global financial crisis (GFC) for some of the countries; (b) economic integration, both real and financial, has an asymmetric impact on the relationship between the two markets both in the short-run and in the long-run; and (c) applying a linear framework does not bring out the impact of financial integration.

Severe swings among the financial markets’ linkages in the recent past motivate the research to examine the exchange rate co-movements. Therefore, this study examines the interdependence and contagion among the exchange rates of five important Asian emerging markets, namely Indonesia, Malaysia, Philippines, Singapore and Thailand exploring the multifarious nature of interdependence and lead lag association using discrete and continuous wavelet decomposition. The findings show the co-movement among many exchange rate pairs showing a substantial increase during the global financial crisis. There are moderate rises in co-movements, indicating regional market convergence in the long run. Singapore seems to hold driving position and Indonesia falls behind in all exchange rate pairs of the ASEAN-5. The findings provide policy implications for caring the interdependence in foreign exchange markets.