On the co-movement of crude, gold prices and stock index in the Indian market

Abhibasu Sen and Karabi Dutta Choudhury ()
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Abhibasu Sen: Department of Mathematics, Assam University, Dargakona, Silchar, Assam 788011, India
Karabi Dutta Choudhury: Department of Mathematics, Assam University, Dargakona, Silchar, Assam 788011, India

International Journal of Financial Engineering (IJFE), 2020, vol. 07, issue 03, 1-26

Abstract: The nonlinear relationship in the joint time-frequency domain has been studied for the Indian National Stock Exchange (NSE) with the international Gold price and WTI Crude Price being converted from Dollar to Indian National Rupee based on that week’s closing exchange rate. Though a good correlation was obtained during some period, but as a whole no such cointegration relation can be found out. Using the Discrete Wavelet Analysis, the data was decomposed and the presence of Granger Causal relations was tested. Unfortunately, no significant relationships are being found. We then studied the Wavelet Coherence of the two pairs, namely NSE-Nifty & Gold and NSE-Nifty & Crude. For different frequencies, the coherence between the pairs have been studied. At lower frequencies, some relatively good coherence have been found.In this paper, we report for the first time the co-movements between Crude Oil, Gold and Indian Stock Market Index using Wavelet Analysis (both Discrete and Continuous), a technique which is most sophisticated and recent in market analysis. Thus, for long-term traders they can include gold and/or crude in their portfolio along with NSE-Nifty index in order to decrease the risk (volatility) of the portfolio for the Indian Market. But for short-term traders, it will not be effective, not to include all the three in their portfolio.

Keywords: Wavelet analysis co-movement; national stock exchange of India; WTI prices; gold prices (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S242478632050036X

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