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Gold, oil, and stocks: Dynamic correlations

Jozef Baruník (), Evzen Kocenda () and Lukas Vacha ()

International Review of Economics & Finance, 2016, vol. 42, issue C, 186-201

Abstract: We employ a wavelet approach and conduct a time-frequency analysis of dynamic correlations between pairs of key traded assets (gold, oil, and stocks) covering the period from 1987 to 2012. The analysis is performed on both intra-day and daily data. We show that heterogeneity in correlations across a number of investment horizons between pairs of assets is a dominant feature during times of economic downturn and financial turbulence for all three pairs of the assets under research. Heterogeneity prevails in correlations between gold and stocks. After the 2008 crisis, correlations among all three assets increase and become homogenous: the timing differs for the three pairs but coincides with the structural breaks that are identified in specific correlation dynamics. A strong implication emerges: during the period under research, and from a different-investment-horizons perspective, all three assets could be used in a well-diversified portfolio only during relatively short periods.

Keywords: Financial markets; Time-frequency dynamics; High-frequency data; Dynamic correlation; Financial crisis; Wavelets (search for similar items in EconPapers)
JEL-codes: C01 C13 C58 F37 G11 G15 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Gold, Oil, and Stocks (2014) Downloads
Working Paper: Gold, Oil, and Stocks (2014) Downloads
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