Dynamic co‐movements across forex, gold, crude oil and Indian equity market

Abstract

The research seeks to assess whether the Indian capital market is following a sustainable equilibrium relationship with gold, oil and currency exchange in long and short intervals or not. The study uses autoregressive distributed lag (ARDL)-unrestricted error correction model (UECM) Bounds test over 25 years from 1990 to 2016. The result indicates that equity indices are cointegrated and has a relationship for a long run with gold and currency exchange. Volatility in gold prices and currency exchange affects equity performance for a long and short interval of time. Only oil price movements affect the currency exchange rate in long-run. No other variable makes any impact on it in short-run. The outcome supports gold that appeared as an alternative investment asset class in the investors' community. The report features the necessity to structure policies so that currency exchange gestures and financial return volatility can be monitored and controlled with gold and oil prices as instruments. | INTRODUCTIONIn recent times, Indian markets have undergone significant uncertainty, either in financial markets or commodity markets. Foreign currency markets are reflecting a persistent decline in rupee value against US dollar, followed by high movements in crude, gold prices, and equity returns. When it comes to lead the market these variables are critical. Commodities price movements have a pervasive impact on all economic and financial movements along with all segments of the global economy. All the movements of market integration in the financial world are also visible in the commodity market with the most traded metals gold and oil. Gold and oil are the most common among the active traded commodities (Yaha, Tumala, & Udomboso, 2016).Gold serves as a best preserving purchasing power over a long period due to its high liquidity; a hedge against inflation; owing to its favorable correlation (Bampinas & Panagiotidis, 2015), a source of wealth, derivative valuation, and so forth (Gaur & Bansal, 2010;Yahyazadehfar & Babaie, 2012). In addition, crude as a principal indi-

Assessment, Interaction and the Transmission Process of Twin deficit Hypothesis: Fresh Evidence from India

“…Given our earlier reflection on the budget deficit, CAD, and other variables such as domestic capital formation and currency exchange rates, a framework seems to emerge where government budgetary balance leads to explain current account balance. It is evident that currency exchange and gold volatility make an adverse effect on equity performance (Nautiyal, 2020). Therefore, the pattern was further extended to have GDP, private investment to GDP, and real effective exchange rate as reference variables for the model equation.…”