Financial Uncertainty and Gold Market Volatility: Evidence from a GARCH-MIDAS Approach with Variable Selection

O-Chia Chuang, Rangan Gupta, Christian Pierdzioch and Buliao Shu
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O-Chia Chuang: School of Digital Economics, Hubei University of Economics
Buliao Shu: School of Digital Economics, Hubei University of Economics
Authors registered in the RePEc Author Service: Oguzhan Cepni

No 202441, Working Papers from University of Pretoria, Department of Economics

Abstract: We analyze the predictive effect of monthly global, regional, and country-level financial uncertainties on daily gold market volatility using univariate and multivariate GARCH-MIDAS models, with the latter characterized by variable selection. Based on data over the period of July 1992 to May 2020, we highlight the role of the global financial uncertainty factor in accurately forecasting gold price volatility relative to the benchmark GARCH-MIDAS-realized volatility model, with a dominant role of Europe, and 36 out of the 42 financial markets. The performance of the global financial uncertainty factor is as good as an index of global economic conditions, and cannot be outperformed by the multivariate version of the GARCH- MIDAS framework involving top five developed and developing countries each, chosen based on their ability to explain the movements of overall global financial uncertainty. Implications are drawn for investors and policymakers based on our findings.

Keywords: gold price volatility; financial uncertainty; GARCH-MIDAS model; adaptive LASSO (search for similar items in EconPapers)
JEL-codes: C32 C53 D80 G15 Q30 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-09
New Economics Papers: this item is included in nep-fdg, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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