Effects of Crude Oil and Gold Prices on US Stock Market: Evidence for USA from ARDL Bounds Testing
Abstract
This paper explores the effects of changes in crude oil and gold prices on US Stock market movement. Daily data are used from the first business day of January, 1986 through December30, 2016. Efficient unit root tests (DF-GLS and Ng-Perron) are applied to examine the time series property of the variables in terms of stationarity or non-stationarity. ARDL Bounds Testing is applied for co-integration. Both DF-GLS and Ng-Perron tests confirm non-stationarity of each variable and depict I (1) behavior of all the variables in log-levels, included in this study. The ARDL-Bounds testing confirm co-integration among the variables. There is evidence of long-run convergence among all these variables with very tepid adjustment toward the equilibrium. Short-run negative effects of changes in gold and crude oil prices on US stock market returns are observed. The effect is statistically significant from gold price changes, but insignificant from crude oil price changes.
Keywords
Full Text:
PDFReferences
Akaike, H. (1969). Fitting autoregression for prediction, annals of the institute of statistical mathematics, 21, 243-247.
Arouri, M. E., A., Lahiani, and D. K. Nguyen. (2015). World gold prices and stock returns in china: Insights for hedging and diversification strategies, Economic Modelling 44, 273-282.
Batten, J. A., C., Ciner and B.M. Lucey . (2010). The macroeconomic determinants of volatility in precious metals markets, Resources Policy 35, 65-71.
Baur, D. G. (2012). Asymmetric volatility in the gold market, Journal of alternative investments 14, 26-38.
Baur, D.G. and T.K. McDermott. (2009). Is Gold a Safe Haven? International Evidence. IIIS Discussion Paper No. 310, Trinity College Dublin. Retrieved from http:// ssrn.com/abstract=952289.
Baur, D.G., and T.K., McDermott. (2010). Is gold a safe haven? International evidence, Journal of Banking and Finance 34, 1886-1898.
Bhunia, A. (2013). Cointegration and casual relationship among crude price, domestic gold price and financial variables: an evidence of BSE and NSE, Journal of Contemporary Issues in Business Research 2, 1-10.
Buyuksalvarci, A. (2010). The Effects of macroeconomics variables on stock returns: Evidence from Turkey, European Journal of Social Sciences, 14:404-416.
Cai, J., Y.L., Cheung, and M.C., Wong. (2011). What moves the gold market?, Journal of Future Markets 21, 257-278.
Capie, F., T. C., Mills, and G.Wood. (2005), Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions and Money 15, 343-352.
Ciner, C. (2001). Energy shocks and financial markets: Nonlinear linkages, Studies in Nonlinear Dynamics & Econometrics 5, 203-212.
Dempster, N. and J.C. Artigas. (2010). Gold: inflation hedge and long-run determinants of the price of gold, World Gold Council Report, Research Study No. 32, Business School, London.
Ebrahim, Z., O.R. Inderwidi, and D.A. King. (2014). Macroeconomic impacts of oil price volatility: Mitigation and resilience, Frontiers in Energy 8, 9-24.
Elliot, G., T.J. Rothenberg and J.H. Stock. (1996). Efficient tests for an autoregressive unit root. Econometrica, 64(4):813-836.
Engle, R.F. and C.W. J. Granger. (1987). Cointegration and error correction representation: Estimation and testing. Econometrica, 55(2):521-576.
Ewing, B. T., and F. Malik. (2013). Volatility transmission between gold and oil futures under structural breaks, International Review of Economics and Finance 25, 113-121.
Goodman, B. (1956). The Price of Gold and International Liquidity. Journal of Finance 11, 15-28.
Granger, C.W.J. (1988). Causality, cointegration and control, Journal of Economic Dynamics and Control, 12(2-3):551-559
Granger, C.W.J. and P. Newbold. (1974). Spurious regressions in econometrics, Journal of Econometrics, 2, 111-120.
Granger, C.W.J., B. Huang and C.W. Yang. (2000). A bivariate causality between stock prices and exchange rates: Evidence from the recent Asian flu, Quarterly Review of Economics and Finance, 40, 337-354.
Hammoudeh, S., R. Sari and B.T. Ewing. (2008). Relationships among strategic commodities and with financial variables: A new look, Contemporary Economic Policy, 27 (2), 251-264.
Herbst, F. (1983). Gold versus U.S. common stock: some evidence on inflation hedge performance and cyclical behavior, Financial Analyst Journal, 39(1): 66-74.
Hooker, M.A. (2002). Are oil shocks inflationary? Asymmetric and nonlinear specifications versus changes in regime, Journal of Money, Credit and Banking, 34, 540-561.
Huang, R.D., R.W. Masulis, and H.R. Stoll. (1996). Energy shocks and financial markets, Journal of Futures Markets 1, 1-27.
Hunt, B. (2006). Oil price shocks and the U.S. stagflation of the 1970s: Some insights from GEM, Energy Journal, 27, 61-80.
Issam, S.A.A. and V. Murinde. (1997). Exchane rate and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines, Applied Financial Economics, 7(1): 25-35.
Ji, Q., and Y. Fan.(2012). How does oil price volatility affect non- energy commodity markets?, Applied Energy 89, 273-280.
Johansen, S. and K. Juselius. (1990). Maximum likelihood estimation and inference on cointegration with application to the demand for money, Oxford Bulletin of Economics and Statistics, 52(2):169-210.
Jones, C.M., and G. Kaul. (1996). Oil and the stock markets, Journal of Finance 51,309-313.
Kaufman, T. D., and R. A. Winters. (1989). The price of gold: a simple model, Resources Policy 15, 309-313.
Levin, E.J., A. Montagnoli and R.E. Wright. (2006). Short-run and long-run determinants of the price of gold, World Gold Council Report, Research Study No.32, Business School, London.
Masih, R., S., Peters and L. D. Mello. (2011). Oil price volatility and stock price fluctuations in an emerging market: Evidence from South Korea, Energy Economics 33, 975-986.
McCown, R.J. and J.R. Zimmerman. (2006). Is gold a zero-beta asset? Analysis of the investment potential of precious metals, Available at SSRN: http://ssr n.com/paper=920496.
Mensi, W., M., Beljid, A., Boubaker, and S. Managi. (2013). Correlations and volatility spillovers across commodity and stock markets: linking energies, food, and gold, Economic Modelling 32, 15-22.
Moore, G.H. (1990). Gold prices and a leading index of inflation, Challenge, 33(4): 52-56.
Mork, K. A., O. Olsen, and H.T. Mysen. (1994). Macroeconomic responses to oil price increases and decreases in seven OECD countries, Energy Journal 15, 19-35.
Muhsmmad, N., A. Rasheed and H. Fazal. (2003). Stock prices and exchange rates: are they related? Evidence from South Asian Countries, Pakistan Development Review, 41(4):535-550.
Narayan, P.K. (2005). The saving and investment nexus for China: Evidence from cointegration
tests, Applied Economics 37, 1979-1990.
Narayan, P.K., and S. Narayan. (2007). Modelling oil price volatility, Energy Policy 35, 6549-6553.
Papapetrou, E. (2001). Oil price shocks, stock market, economic activity and employment in greece, Energy Economics 23, 511-532.
Pesaran, M.H. and B. Pesaran. (1997). Working with microfit 4.0: Interactive econometric analysis. Oxford: Oxford University Press.
Pesaran, M.H., Y. Shin and R.J. Smith. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3):289-326.
Pindyck, R. S. (2003). Volatility in natural gas and oil markets. Cambridge, MA: Massachusetts Institute of Technology.
Sari, R., S., Hammoudeh, and U. Soytas. (2010). Dynamics of oil price, precious metal prices, and exchange rate, Energy Economics, 32, 351-362.
Sharma, G.D. and M. Mandeep. (2010). Impact of macro-economic variables on stock prices in India. Global Journal of Management and Business Research, 10(7): 1-18.
Soytas, U., R., Sari, S. Hammoudeh and E. Hacihasanoglu. (2009). World oil prices, precious metal prices and macroeconomy in Turkey, Energy Policy, 37, 5557-5566.
Tully, E., and B.M. Lucey. (2007). A power GARCH examination of the gold market, Research in International Business and Finance 21, 316-325.
Wang, K.M. and Y.M. Lee. (2011). The yen for gold, Resources Policy, 36 (1), 39-48.
Wang, M.L., C.P. Wang and T.Y. Huang. (2010). Relationships among oil price, gold price, exchange rate and international stock markets, International Research Journal of Finance and Economics, 47,82-91.
Zhang, Y.J. and Y.M. Wei. (2010). The crude oil market and the gold market: Evidence for cointegration, causality and price discovery, Resources Policy, 35, 168-17
DOI: http://dx.doi.org/10.18686/fm.v3i1.1055
Refbacks
- There are currently no refbacks.
