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

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  • Lu Yang
  • Shigeyuki Hamori

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.

Suggested Citation

  • Lu Yang & Shigeyuki Hamori, 2014. "Gold prices and exchange rates: a time-varying copula analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 24(1), pages 41-50, January.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:1:p:41-50
    DOI: 10.1080/09603107.2013.859375
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    Cited by:

    1. Brian M. Lucey & Maurice Peat & Aleksandar Šević & Samuel A. Vigne, 2021. "What is the optimal weight for gold in a portfolio?," Annals of Operations Research, Springer, vol. 297(1), pages 277-291, February.
    2. Dey Shubhasis & Sampath Aravind, 2017. "Dynamic Linkages between Gold and Equity Prices: Evidence from Indian Financial Services and Information Technology Companies," Working papers 251, Indian Institute of Management Kozhikode.
    3. Peng, Wei & Hu, Shichao & Chen, Wang & Zeng, Yu-feng & Yang, Lu, 2019. "Modeling the joint dynamic value at risk of the volatility index, oil price, and exchange rate," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 137-149.
    4. Ibrahim, Zil Farlilah & Masih, Mansur, 2017. "Is gold a better choice as reserve currency for smaller market economies?," MPRA Paper 105474, University Library of Munich, Germany.
    5. Xinyu Yuan & Jiechen Tang & Wing-Keung Wong & Songsak Sriboonchitta, 2020. "Modeling Co-Movement among Different Agricultural Commodity Markets: A Copula-GARCH Approach," Sustainability, MDPI, vol. 12(1), pages 1-17, January.
    6. Reboredo, Juan C. & Ugando, Mikel, 2014. "US dollar exchange rate and food price dependence: Implications for portfolio risk management," The North American Journal of Economics and Finance, Elsevier, vol. 30(C), pages 72-89.
    7. Paul, Manas & Bhanja, Niyati & Dar, Arif Billah, 2019. "Gold, gold mining stocks and equities- partial wavelet coherence evidence from developed countries," Resources Policy, Elsevier, vol. 62(C), pages 378-384.
    8. Raza Syed Ali & Shah Nida & Ali Muhammad & Shahbaz Muhammad, 2021. "Do Exchange Rates Fluctuations Influence Gold Price in G7 Countries? New Insights from a Nonparametric Causality-in-Quantiles Test," Zagreb International Review of Economics and Business, Sciendo, vol. 24(2), pages 37-57.
    9. Emmanuel Afuecheta & Saralees Nadarajah & Stephen Chan, 2021. "A Statistical Analysis of Global Economies Using Time Varying Copulas," Computational Economics, Springer;Society for Computational Economics, vol. 58(4), pages 1167-1194, December.
    10. Tanin, Tauhidul Islam & Sarker, Ashutosh & Brooks, Robert, 2021. "Do currency exchange rates impact gold prices? New evidence from the ongoing COVID-19 period," International Review of Financial Analysis, Elsevier, vol. 77(C).
    11. Bulut, Levent & Rizvanoghlu, Islam, 2019. "Is Gold a Safe Haven? International Evidence revisited," MPRA Paper 91957, University Library of Munich, Germany.
    12. O'Connor, Fergal A. & Lucey, Brian M. & Batten, Jonathan A. & Baur, Dirk G., 2015. "The financial economics of gold — A survey," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 186-205.
    13. Shubhasis Dey, 2016. "Historical Events and the Gold Price," Working papers 198, Indian Institute of Management Kozhikode.
    14. Dar, Arif Billah & Bhanja, Niyati & Paul, Manas, 2019. "Do gold mining stocks behave like gold or equities? Evidence from the UK and the US," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 369-384.

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