Understanding Dynamic Relationship among Gold Price, Exchange Rate and Stock Markets: Evidence in Indian Context

Atul Shiva and Monica Sethi

Global Business Review, 2015, vol. 16, issue 5_suppl, 93S-111S

Abstract: The purpose of research in this article is to investigate the relationship among gold prices, Bombay Stock Exchange’s Sensex, National Stock Exchange’s Standard and Poor’s (S&P) Financial Services LLC CNX NIFTY 1 (S&P CNX NIFTY) and US dollar/Indian rupee (USD/INR) exchange rate for the period January 1998–April 2014. The relationship among these variables has been studied by applying vector error correction model (VECM) in order to check the long-run and short-run causality. Johansen cointegration test has been applied to find out the long-term cointegration among variables in the study. In further analysis, Wald’s coefficient diagnosis and residual analysis revealed that gold prices, SENSEX, USD/INR and S&P CNX NIFTY are in equilibrium in the short run and long run. Granger causality test finally confirms the presence of unidirectional causality that runs from gold prices to S&P CNX NIFTY and also from gold prices to USD/INR exchange rate at current prices.

Keywords: Gold prices; Nifty; Sensex; Johansen cointegration; vector error correction model (VECM); Granger causality (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:16:y:2015:i:5_suppl:p:93s-111s

DOI: 10.1177/0972150915601257

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