Gold prices and exchange rates: a time-varying copula analysis

Lu Yang and Shigeyuki Hamori

Applied Financial Economics, 2014, vol. 24, issue 1, 41-50

Abstract: We investigate the dynamic dependence structure between specific currencies (the GBP, the EUR and the JPY) and gold. The primary findings are as follows. First, the lower and upper conditional dependences between the currencies and gold were weaker during the financial turmoil period than in the normal period, implying that the currencies mostly deviated from their real value during this time. Second, the conditional upper tail dependences are stronger and fluctuate more than the conditional lower dependences for the GBP/gold and the JPY/gold pairs. However, the lower tail dependence for the EUR/gold pair remains constant. Furthermore, the negative dynamic dependences during the market crash imply that gold showed its real value during the crisis. Finally, the dependence structure between the gold price and the exchange rate is asymmetric. Our results provide useful information for investors interested in portfolio diversification, risk management and international asset allocation.

Date: 2014
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Citations: View citations in EconPapers (15)

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DOI: 10.1080/09603107.2013.859375

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