How does economic policy uncertainty drive gold--stock correlations? Evidence from the UK

Ruzhao Gao and Bing Zhang

Applied Economics, 2016, vol. 48, issue 33, 3081-3087

Abstract: In this article, we investigate the effects of economic policy uncertainty (EPU) on correlations between the UK stock market and gold market. We find that less certain economic policies result in lower correlations, while more certain economic policies result in higher correlations. The correlations are symmetric and show no structural breaks caused by the recent financial crisis. The recent financial crisis has not changed EPU effects on the correlations. The effects of one positive one-standard-deviation shock of the logarithmic change rate of the EPU on the correlations last approximately 19 months.

Date: 2016
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DOI: 10.1080/00036846.2015.1133903

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