THE DETERMINANTS OF A SIMULTANEOUS CRASH IN GOLD AND STOCK MARKETS: AN ORDERED LOGIT APPROACH
Takashi Miyazaki () and
Shigeyuki Hamori ()
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Takashi Miyazaki: Japan Center for Economic Research, Nikkei Inc. Bldg. 11F, 1-3-7 Otemachi, Chiyoda-ku, Tokyo 100-8066, Japan
Annals of Financial Economics (AFE), 2018, vol. 13, issue 01, 1-25
In this study, we identify the determinants of a simultaneous crash in gold and stock markets by employing an ordered logit model. We find that a default spread, among the various financial risk indicators, is a valid determinant and that changes in investors’ beliefs, their uncertainties, and surprise changes in these uncertainties about gold and stock markets contain useful information for explaining the occurrence of a simultaneous crash in the two markets. Further, we recognize that the effect of some covariates on crash probability is state-dependent. In addition to these empirical results, a notable finding is that the occurrence of a crash in one market on a previous day does not raise the probability of the occurrence of a crash in another market the next day, implying that a joint crash occurs abruptly and not in a chain reaction. This finding reveals that diversification to gold is still beneficial to investors.
Keywords: Gold market; stock market; simultaneous crash; ordered logit model; probability response curve (search for similar items in EconPapers)
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Working Paper: The determinants of a simultaneous crash in gold and stock markets: An ordered logit approach (2016)
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