Effects of Geopolitical Risks on Gold Market Return Dynamics: Evidence from a Nonparametric Causality-in-quantiles Approach

Jianbai Huang, Yingli Li, Muhammad Tahir Suleman and Hongwei Zhang

Defence and Peace Economics, 2023, vol. 34, issue 3, 308-322

Abstract: This study uses a nonparametric causality-in-quantiles approach to investigate the causal relationship between the gold market and geopolitical risks from 4 January 2000, to 17 November 2017, using high-frequency data. The results indicated that geopolitical risks affect volatility rather than returns in the gold market. We also decompose intraday volatility into continuous and discontinuous jump components and find that geopolitical risks have stronger causality with the jump component under bear and normal market conditions. The results show, moreover, that the effects of geopolitical risks on realized volatility are asymmetric. Lastly, we divide the entire sample into four major geopolitical events (i.e. the 9/11 terrorist attacks, Irap invasion, the Russia-Ukraine crisis, and Paris attacks) and find that the effect of these events on the gold market varied by type and scope.

Date: 2023
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DOI: 10.1080/10242694.2021.2007333

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