Analysing the gold-stock nexus using VARMA-BEKK-AGARCH and Quantile regression models: New evidence from South Africa and Nigeria

Adeolu O. Adewuyi, Olabanji Awodumi and Temitope T. Abodunde

Resources Policy, 2019, vol. 61, issue C, 348-362

Abstract: This study examines the nexus between gold and stock for Nigeria and South Africa using VARMA-BEKK-AGARCH (V-B-A) model and Quantile regression (QR) approach. A major distinguishing feature of the V-B-A model is its capacity to account for cross-market asymmetric shock spillover. This kind of shock spillover occurs within the gold market and the two countries’ stock markets. In addition, cross-market asymmetric shock spillover is noticed between each country's stock market and gold market. The quantile regression analysis shows instantaneous influence of South Africa's stock on gold in the low to intermediate quantiles where structural break is not considered, while no evidence of instantaneous response of gold to stock returns is found for Nigeria at all quantiles. In the presence of structural break, there is instantaneous gold response to stock returns in both countries in almost all quantiles. Effective portfolio allocation and hedging analysis based on the two methods used in this study reveals that, in the case of Nigeria (unlike South Africa) adding gold asset to a well-diversified portfolio of stocks may improve the risk-adjusted performance. This suggests that gold could be used to effectively hedge stock risk exposures in Nigeria as opposed to South Africa.

Keywords: VARMA-BEKK-AGARCH model; Quantile regression; Stock markets; Gold market; Diversification and hedging effectiveness (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:61:y:2019:i:c:p:348-362

DOI: 10.1016/j.resourpol.2019.02.015

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