Causal relationship among international crude oil, gold, exchange rate, and stock market: Fresh evidence from<scp>NARDL</scp>testing approach

Kumar, Suresh; Kumar, Ankit; Singh, Gurcharan

doi:10.1002/ijfe.2404

Cited by 30 publications

(20 citation statements)

References 63 publications

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“…Likewise, Monica and Santhiyavali (2017) reported the same result in India that there is a long-run relationship between exchange rate and gold prices. Likewise, Kumar et al (2020) investigated the dynamic association between the gold price and ERV They reported that gold prices affect ERV. Bashar and Kabir (2013) investigated the nexus between commodity prices and Australian dollar ERV and found that the increased commodity price volatility results in higher ERV.…”

Section: Literature Reviewmentioning

confidence: 99%

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Rashid

Basit

2021

JCEFTS

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Purpose This paper aims to explore the empirical determinants of exchange-rate volatility (ERV) in selected Asian economies, namely, Bangladesh, China, India, Indonesia, Malaysia and Pakistan. Specifically, it examines how the volatility of foreign reserves, government spending, industrial production, gold prices and terms of trade affect monthly ERV during the examined period. Design/methodology/approach The authors carry out the empirical analysis by using monthly data for the period January 1997–March 2019. First, the volatility of the underlying variables is measured based on the conditional variances obtained by estimating the univariate (generalized) autoregressive conditional heteroskedasticity [(G)ARCH] model for each variable during the study period. Next, the autoregressive conditional heteroscedasticity (ARCH)-Lagrange multiplier test is applied to ensure that there are no remaining ARCH effects in the residuals. Finally, the multivariate autoregressive-moving average-GARCH (1, 1) models are estimated to examine whether and how the volatility of the underlying variables affects ERV. Findings The results reveal that the current period volatility of exchange rates is significantly affected by ERV in the previous period in all selected countries. The results also indicate that the volatilities of the underlying macroeconomic variables are quite differently related to ERV in examined Asian countries. Foreign-reserve volatility (VFXRES) has negative and significant impacts on ERV in Bangladesh, China and Malaysia. Government-spending volatility is negatively related to ERV in India, whereas it is positively related to ERV in all other examined countries. The results also suggest that although terms-of-trade volatility reduces ERV in both Bangladesh and Pakistan, it amplifies ERV in the remaining examined countries. However, gold-price volatility (VGOLDP) significantly, positively contributes to ERV in Bangladesh, Indonesia and Malaysia. On the contrary, the higher volatility in industrial production (VIPI) results in lower ERV in Indonesia and Pakistan, whereas it increases ERV in China, India and Malaysia. Practical implications The findings have several important policy implications. First, the findings suggest that both Bangladesh and Malaysia should keep an adequate level of foreign reserves to stabilize their foreign exchange rates. Second, as government-spending volatility has a vital role in determining ERV, it is necessary to bring sustainability and continuity in government expenditures. Bangladesh and Pakistan can stabilize their foreign exchange rates by making exports more competitive, viable and accessible. Originality/value This paper significantly contributes to the existing literature by exploring how the behavior of unexpected variations in the factors determining exchange rates affects ERV in selected Asia countries. Most of the published studies have examined the determinants of exchange rates by considering the macroeconomic variables at their levels. Departing from the existing studies, this paper significantly relates the volatility (second moment) of exchange rate determinants to the behavior of ERV. Further, this paper provides firsthand empirical evidence on this issue for the selected Asian economies.

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Section: Literature Reviewmentioning

confidence: 99%

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Rashid

Basit

2021

JCEFTS

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“…However, although research has been ample, few studies have focused on major importing countries such as India (Ram 2017;Kumar et al 2020). Moreover, relatively few studies have examined the impact of the RMB exchange rate on China's stock prices while adding the variable of global commodity prices, which has proven unignorable in more recent studies.…”

Section: The Effects Of Global Commodity Prices On Stock Pricesmentioning

confidence: 99%

Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices?

Long

Zhang

et al. 2021

Financ Innov

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With the rapid expansion of the RMB exchange rate’s floating range, the effects of the RMB exchange rate and global commodity price changes on China’s stock prices are likely to increase. This study uses both auto regressive distributed lag (ARDL) and nonlinear ARDL (NARDL) approaches to explore the symmetric and asymmetric effects of the RMB exchange rate and global commodity prices on China’s stock prices. Our findings show that without considering the critical variable of global commodity prices, there is no cointegration relationship between the RMB exchange rate and China’s stock prices, and the coefficient of the RMB exchange rate is not statistically significant. However, when we introduce global commodity prices into the NARDL model, the result shows that the RMB exchange rate has a negative effect on China’s stock prices, that there indeed exists a long-run cointegration relationship among the RMB exchange rate, global commodity prices, and stock prices in the NARDL model, and that global commodity price changes have an asymmetric effect on China’s stock prices in the long run. Specifically, China’s stock prices are more sensitive to increases than decreases in global commodity prices. Thus, increases in global commodity prices cause China’s stock prices to decline sharply. In contrast, the same magnitude of decline in global commodity prices induces a smaller increase in China’s stock prices.

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“…They highlight that the dependence between oil and exchange rates is significantly negative during different periods of analysis. For a sample of emerging countries, Kumar et al (2020) study the causal relationship between international prices of crude oil, gold, exchange rate and Indian stock market using the nonlinear autoregressive distributed lag model. The findings of the study revealed that crude oil prices positively affect the Indian stock market and exchange rate negatively affects the stock market in the short run.…”

Section: Introductionmentioning

confidence: 99%

Are the macroeconomic effects on oil price asymmetric? An asymmetric quantile regression approach

Alqaralleh

2022

IJESM

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Purpose This paper aims to contribute to the clarification of whether the dependence and causality between oil and the macrofundamentals change across different quantiles of the distribution function. Design/methodology/approach Within the context of an asymmetric quantile approach, we drop the assumption that variables operate at the upper tails of the distribution in the way that they operate at the mean. Findings Our innovative approach indicates that the response of oil prices not only differs according to the underlying source of the variables shock but also differs across the quantiles. Originality/value Although a number of recent studies are closely related to our present research, our novel findings offer some important insights that foreshadow the empirical results. The current research addresses to answer the following questions, in sequence: (i) Is there any extreme value dependence between the crude oil and macroeconomic variables? If yes, (ii) is the dependence symmetric or asymmetric? Finally, (iii) can this dependence be driven by the phases of the economic cycle?

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Causal relationship among international crude oil, gold, exchange rate, and stock market: Fresh evidence fromNARDLtesting approach

Cited by 30 publications

References 63 publications

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Empirical determinants of exchange-rate volatility: evidence from selected Asian economies

Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices?

Are the macroeconomic effects on oil price asymmetric? An asymmetric quantile regression approach

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