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Exchange Rate, Gold Price, and Stock Market Nexus: A Quantile Regression Approach

Rizwan Ali (), Inayat Ullah Mangla (), Ramiz Ur Rehman (), Wuzhao Xue (), Muhammad Akram Naseem () and Muhammad Ishfaq Ahmad ()
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Rizwan Ali: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan
Inayat Ullah Mangla: Department of Finance and Commercial Law, Western Michgan University, Kalamazoo, MI 49008, USA
Ramiz Ur Rehman: School of Management, Xi’an Polytechnic University, Xi’an 710048, China
Wuzhao Xue: School of Economics and Management, Xidian University, Xi’an 710126, China
Muhammad Akram Naseem: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan
Muhammad Ishfaq Ahmad: Lahore Business School, The University of Lahore, Lahore 54100, Pakistan

Risks, 2020, vol. 8, issue 3, 1-16

Abstract: In this study, we examine an empirical relationship between stock market volatility with the exchange rate and gold prices of an emerging market, “Pakistan”, employing daily and monthly data (PSX-100 Index) covering from 2001: Q3 to 2018: Q2. The study explains the average stock returns by applying MGARCH. Further, it investigates that the volatility in the exchange rate (Rs/US $) and gold prices remain equally strong in bearish and bullish conditions of the stock market by using a quantile regression approach (2001–2018). Additionally, the sample period is divided into two split samples that cover (2001–2007) and (2008–2018) respectively, based on global financial crises and applied similar analysis. The overall results show the negative impact of the exchange rate and gold price volatility on the stock market performance daily (monthly), supporting the argument that the stock market considers the exchange rate and gold price fluctuations as an adverse indicator and reacts negatively.

Keywords: exchange rate; gold price; PSX; quantile regression (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
Date: 2020
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