Asymmetric causality between stock returns and usual hedges: An industry-level analysis

Assets such as gold, silver, government bonds are widely considered good hedges against adverse movements in the stock market. At times, market participants move between these markets in order to hedge against any immediate risks. The shifts from one market to another likely create a dynamic relationship between the stock market and other assets. We investigate short-run and long-run causality between the industry returns and the prices of the four assets: gold, silver, oil, and 10-year Treasury bonds. Using symmetric and asymmetric Granger causality, we try to identify different industries within the S&P500 that are caused by movement in the prices of these four assets. Although we were able to find short-run and long-run bidirectional causality between the four asset prices and share returns in many industries, our findings are industry-specific. We discover overwhelming and robust evidence of symmetric and asymmetric causality between 10-Year Treasury yield and returns of almost all 18 industries we considered.