MODELING NONLINEAR GRANGER CAUSALITY AND CO-INTEGRATION BETWEEN GOLD PRICE RETURNS AND CRUDE OIL PRICE RETURNS
Download| Volume 14 Issue 2 2018 | |
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| Author(s): |
Nawaz Ahmad
Syed Kashif Rafi
Muhammad Tariq
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| Abstract | To model the nonlinear analysis of commodities, the Gold market and crude oil market have importance to test their lead and lag price mechanism between the two. For this purpose, the log transformation has been done to calculate easier multiplicative effects. However, to record the dynamic effects of the long-run cointegration model applied and tested to find the significance of the problem statement issues. Furthermore, the granger causality approach also uses to examine the fundamental linkages between Gold Prices and Crude Oil prices. Meanwhile, the study of Gold markets and oil markets gained popularity among development economists during in last some decades. And try to find out the stochastic relationship between the two nonlinear markets. The academic practitioners paved their efforts to run casual time series models to find out the robust results which help the economists and financial experts to drive the industry indicator positively. This study confirmed that there is cointegration between the two important indicators of large market commodities i.e Gold and crude oil and also casual interactions. Pairwise Granger Causality Tests concluded that Gold Prices return has Granger Cause on Oil Prices return in the long run and if the βeta change in the prices of gold may affect the prices of crude oil in the long run. |
| Keywords | Crude Oil Prices, Gold Oil Prices, Cointegration, Nonlinear modeling, log returns |
| Year | 2018 |
| Volume | 14 |
| Issue | 2 |
| Type | Short Report |
| Recognized by | Higher Education Commission of Pakistan, HEC | Category | "Y" | Journal Name | IBT Journal of Business Studies | Publisher Name | ILMA University | Jel Classification | Q3, C5 | DOI | http://dx.doi.org/10.46745/ilma.jbs.2018.14.02.09 | ISSN no (E, Electronic) | 2409-6520 | ISSN no (P, Print) | 2416-8393 | Country | Pakistan | City | Karachi | Institution Type | University | Journal Type | Open Access | Type of Review | Double Blind Peer Reviewed | Format | Paper Link | http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/14.2/9.pdf | Page | 105-116 | References | Aggarwal, R., & Lucey, B. (2007). Psychological barriers in gold prices? Review of Financial Economics, Vol. 16 ((2)), pp.217-230. Bampinas, G., & Panagiotidis, T. (2015). On the relationship between oil and gold before and after financial crisis: Linear, nonlinear and time-varying causality testing. Studies in Nonlinear Dynamics & Econometrics, Vol.19((5)), pp.657-668. Baur , D., & McDermott, T. (2010). Is gold a safe heven? International Evidence. Journal of Banking & Finance, Vol.34((8)), pp. 1886-1898. Baur, D., & Lucey, B. (2010). Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold. The Finnancial Review, Vol.45((2)), pp.217-229. Beckmann, J., & Czudaj, R. (2013). Oil and gold price dynamics in a multivariate cointegration framework. International Economics and Economic Policy, Vol.10((3)), pp.453-468. Capie, F., Mills, T., & Wood, G. (2005). Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions and Money, Vol.15((2)), pp.343-352. Cashin, P., McDermott, C., & Scott, A. (1999). The myth of comoving commodity prices. International Monetary Fund Research Department, WP(99/169), pp.1-20. Ciner, C. (2001). On the long run relationship between gold and silver prices A note. Global Finance, Vol. 12((1)), pp.299-303. Engle, R. F., & Granger, C. W. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, Vol.55((2)), pp. 251-276. Hamilton, J. (1983). Oil and the Macroeconomy since World War II. Journal of Political Economy, Vol.91((2)), pp.228-248. Huang, R., Masulis, R., & Stoll, H. (1996). Energy Shocks and Financial Markets. Journal of Futures Markets, Vol.16((1)), pp.1-27. Jones, C. M., & Kaul, G. (1996). Oil and the Stock Markets. The Journal of Finance, Vol. 51((2)), 463-491. Melvin, M., & Sultan, J. (1990). South African political unrest, oil prices, and the time varying risk premium in the gold futures market. The Journal of Futures Markets, Vol. 10((2)), pp.103-111. Reboredo, J. (2013). Is gold a hedge or safe haven against oil price movements? Resources Policy, Vol.38((2)), pp.130-137. Sadorsky, P. (1999). Oil price shocks and stock market activity. Energy Economics, Vol.21((5)), pp.449-469. Worthington, A., & Pahlavani, M. (2007). Gold investment as an inflationary hedge: cointegration evidence with allowance for endogenous structural breaks. Applied Financial Economic Letters, Vol. 3((4)), pp.259-262. Xu, X. E., & Fung, H.-G. (2005). Cross-market linkages between U.S. and Japanese precious metals futures trading. Journal of International Financial Markets, Institutions and Money, Vol. 15((2)), pp.107-124. Zhang, Y.-J., & Wei, Y.-M. (2010). The crude oil market and the gold market: Evidence for cointegration, causality and price discovery. Resources Policy, 35, pp.168-177. Zhang, Y.-J., Fan, Y., Tsai, H.-T., & Wei, Y.-M. (2008). Spillover effect of US dollar exchange rate on oil prices. Journal of Policy Modeling, Vol.30((6)), pp.973-991. |