EconPapers    
Economics at your fingertips  
 

Gold-oil dependence dynamics and the role of geopolitical risks: Evidence from a Markov-switching time-varying copula model

Aviral Tiwari (), Goodness C. Aye, Rangan Gupta () and Konstantinos Gkillas

Energy Economics, 2020, vol. 88, issue C

Abstract: This paper examines the dependence structure and dynamics between gold and oil prices. Specifically, we study the hedge and safe haven ability of gold for oil prices using daily gold prices and West Texas Intermediate Institute (WTI) crude oil spot prices. To this end, we employ time-varying Markov switching copula models. The period of the analysis spans from 2 January 1985 to 30 November 2017. The heterogeneity of market agents is captured by decomposing the raw original series into different multi-resolution analysis (MRA) investment horizons (D1-S9). Furthermore, we examine the effect of geopolitical risks on the dynamic dependence between gold and oil. We provide evidence of time-varying Markov tail dependence structure and dynamics between gold and oil. While our results show that gold is a good hedge for oil returns, and for short- and medium-term investors, it cannot protect long-term investors against losses arising from increasing oil prices. We also provide evidence in support of the safe haven ability of gold for oil. Moreover, we show that the inclusion of geopolitical risks in a pure gold and oil asset portfolio provides diversification benefits, since the former has mostly a negative effect on the dependence structure between gold and oil.

Keywords: Time-varying dependence; Gold and oil markets; Copula models; Geopolitical risks (search for similar items in EconPapers)
JEL-codes: C22 Q02 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988320300876
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Gold-Oil Dependence Dynamics and the Role of Geopolitical Risks: Evidence from a Markov-Switching Time-Varying Copula Model (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:88:y:2020:i:c:s0140988320300876

DOI: 10.1016/j.eneco.2020.104748

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-08-07
Handle: RePEc:eee:eneeco:v:88:y:2020:i:c:s0140988320300876