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Does gold Liquidity learn from the greenback or the equity?

K. Smimou

Research in International Business and Finance, 2017, vol. 41, issue C, 461-479

Abstract: This study seeks to understand and elucidate shifts of gold, dollar, and stock market liquidity, both before and after the 2008 financial crisis. The relationship among these assets is examined by allowing for nonlinear dynamics in the speed of adjustment to the equilibrium. The findings document the predictability role of liquidity proxies of dollar and equity on gold liquidity even after accounting for macroeconomic variables, suggesting that liquidity of both assets maintains an influence on gold behavior. During periods of high exchange-rate volatility between currencies, gold liquidity becomes highly affected by dollar liquidity movements through a nonlinear smooth transition framework. Yet evidence reveals that to fully understand the movements of gold and dollar it is necessary to factor in stock market liquidity as well.

Keywords: Liquidity; Flight to liquidity; Economic growth; Commodity; Gold; the Dollar; Granger causality; Nonlinear cointegration; STAR (search for similar items in EconPapers)
JEL-codes: F31 F3 D4 C15 G10 G11 G12 G15 G20 G30 G32 C52 C61 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:41:y:2017:i:c:p:461-479

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