Phase-wise analysis of dynamic relationship among gold, crude oil, US dollar and stock market

Abstract

Purpose The purpose of this paper is to investigate the dynamic relationship among Gold, Crude oil, Indian Rupee-US Dollar and Stock market-Sensex (gold, oil, dollar and stock market (GODS)) in the pre-crisis, the crisis and the post-crisis periods in the Indian context. Design/methodology/approach The authors use Johansen’s cointegration technique, Vector Error Correction Model (VECM), Vector Auto Regression, VEC Granger Causality/Block Exogeneity Wald Test, and Granger Causality and Toda Yamamoto modified Granger causality to study long-run relationship and causality. Findings Johansen’s cointegration test results indicate that there is a long-run equilibrium relationship among the variables in the pre-crisis and the crisis periods but not in post-crisis period. VECM results report that none of four models of the variables show long-run causality in the pre-crisis period. During the crisis period, both crude oil and Sensex models show long-run causality. However, in some cases, results indicate short-run causality. The authors find one-way causality from USD and Sensex to crude oil, and from gold and Sensex to USD. Thus, the authors conclude that the relationship among GODS is dynamic across global financial crisis. Practical implications The research findings of this study are vital to the large group of stakeholders and participants of gold, crude oil, US dollar and stock market in emerging economies like India. The results are useful to importers, exporters, government, policy makers, corporate houses, retail investors, portfolio managers, commodity traders, treasury and fund managers, other commercial traders, etc. Originality/value This study is one of its kinds as it investigates the relationship among GODS in India in different sub-periods like before, during and after the global financial crisis of 2008. None of the studies compare phase-wise relationship among GODS in the Indian context. The study contributes to the economic theory and the body of knowledge. It highlights the need to revisit the economic theory to explain the interplay mechanism among GODS.

The correlation of gold, exchange rate, and stock market on Covid-19 pandemic period

“…The result is in line with the study by Stefan & Robiyanto (2019) about the negative correlation between the ASEAN stock market and the USD/IDR exchange rate. Similarly, the study by Živkov et al (2016) in Europe and the study by Singh & Sharma (2018) in India discovered negative correlation between stock market and exchange rate.…”

“…Gold is one of the precious metals which is the most important commodity in the world that can attract investors' interest and trade internationally (Singh & Sharma, 2018). According to Natalie & Artigas (2010) gold has two roles as a hedging…”

“…However, the gold price and the USD exchange rate are macroeconomic factors that affect stock price volatility. Gold is one of the most important commodities traded internationally (Singh & Sharma, 2018). According to Husnul, Hidayat, & Sulasmiyati, (2017), gold is used as an alternative investment because it tends to be risk-free and not affected by inflationary pressure.…”

A dynamic relationship between crude oil price and Indian equity market: an empirical study with special reference to Indian benchmark index Sensex

“…The study concluded that oil prices are positively related stock markets of all ten net oil-importing countries and the fundamentals of the stock market also play a significant role in these dynamics. Singh and Sharma (2018) estimated the dynamic relationship between gold, crude oil, US dollar, exchange rate and Sensex and found a long-run relationship between crude oil and Sensex. Another study was conducted on GCC countries by (Yao et al, 2018) where the authors studied the lead-lag structure between the oil price and stock market.…”

The Effect of Crude Oil Price on Merchandise Trade: Evidence from East Asia and Pacific

“…Phan et al (2020) found strong evidence for a negative effect of crude oil price uncertainty on firm performance at both aggregate market and sectoral levels. Singh & Sharma (2018) present that during the crisis period, both crude oil and Sensex models show long-run causality, however, in some cases, results indicate short-run causality and there is one-way causality from USD and Sensex to crude oil, and from gold and Sensex to USD. Urom et al (2020) show a substantial level of business cycle spillover among the markets with crude oil.…”