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Abstract

This study examines the long-run hedging ability of gold and silver prices against alternative measures of consumer price index for the UK and the US. We employ a dataset that spans from 1791 to 2010, and both a time-invariant and a time-varying cointegration framework. We find that gold can at least fully hedge headline, expected and core CPI in the long-run. This ability tends to be stronger when we allow for the long term dynamics to vary over time. The inflation hedging ability of gold is on average higher in the US compared to the UK. Silver does not hedge US consumer prices albeit evidence emerges in favor of a time-varying long-run relationship in the UK.

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... On the other hand, the literature examining the relationship between gold and inflation expectations is relatively scarce and yields mixed results about the hedging effectiveness of gold prices against expected and unexpected inflation rates. A few studies such as Tkacz (2007), Le Long, De Ceuster, Annaert, & Amonhaemanon (2013), and Bampinas and Panagiotidis (2015), report a significantly positive association between the inflation expectations and gold prices, indicating the hedging ability of gold prices in the short term, the long term, or both. However, some studies also document insignificant results and report that gold prices are not useful in predicting future movements of inflation (Erb and Harvey, 2013;Tufail and Batool, 2013;Ghazali, Lean, & Bahari, 2015;Xu, Liu, Su, & Ortiz, 2019a). ...
... The relationship between gold returns and all three forms of inflation was found to be negative, albeit not significant, indicating that gold is a poor hedging instrument in the short term domestically. Bampinas and Panagiotidis (2015) established that there was significant evidence in favor of the hedging ability of gold and silver against three measures of inflation rates-headline, expected, and core CPI-in the UK and the USA over the period of 1791 to 2010, with 220 annual observations. The findings related to the time-varying cointegration approach demonstrated that the long term relationship between gold and expected inflation became stronger and more stable from the late 1990s until 2008. ...
... The results are consistent with the empirical findings of Ghazali et al. (2015), which explored a negative, but statistically insignificant association between expected inflation and gold prices in Malaysia in the short term. In agreement with our main findings, the results of Chua and Woodward (1982), Adrangi, et al. (2003), Erb and Harvey (2013), Le Long et al. (2013), and Bampinas and Panagiotidis (2015) lend further support for gold investments as an inflation hedge in the long term in the observed countries, including the USA, the UK, and Vietnam. Among these studies, Adrangi, et al. (2003) confirmed that inflation could cause a hike in the price of gold due to the hoarding demand for gold under inflationary pressures whereas the prices could be negatively affected by the industrial de-mand, supporting the perception that gold can provide a reliable hedging effectiveness against inflation for US investors. ...
Article
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This paper explores the relationship between inflation expectations and gold returns of monthly and annual maturities in Turkey from 2006 to 2020 with 177 monthly observations through the application of wavelet cohesion and causality tests. The findings reveal significantly negative cohesion in the short term and significantly positive cohesion in the long term, indicating that the hedging ability of gold prices exists only in the long term during crisis periods. Therefore, the findings provide evidence for the validity of the expected inflation effect hypothesis in Turkey. The ordinary least squares results, on the other hand, show that the ongoing COVID-19 pandemic is the most prominent factor in the movement of inflation and gold at all wavelet scales for the two types of maturities. The continuous wavelet transformation based Granger-causality test provides little evidence for out-of-phase and unidirectional causality running from the inflation expectations to gold returns in the higher and medium frequency bands. Furthermore, the QQR results show an asymmetrical impact on each other-implying a hedging effectiveness of gold against inflation expectations-and reveal that its size and magnitude change significantly under different economic conditions and data frequencies. The results have significant implications for portfolio and risk management during normal market conditions as well as hedging and speculation activities during crises in short term and long term periods, respectively.
... Theoretically, this study extends the previous works (e.g., Bampinas and Panagiotidis, 2015;Hoang et al., 2016) by incorporating the measure of the "upside risks" of inflation in the theory of interest model. b Inflation risks arise from the uncertainty surrounding the realization of inflation. ...
... e The study of gold in the US is a logical companion piece to the UK study, given that their economic institutions are akin and that common factors influence their commerce and finance (Jastram, 1977). London was the acknowledged center of the world capital markets during the Gold Standard since the Bank of England could exert a powerful influence on other Gold Standard countries' money supplies and price levels (Bampinas and Panagiotidis, 2015;Bordo and Schwartz, 1994). Presently, the UK plays a significant role in the gold market as one of the leading centers for global gold trade and has high gold demand for financial purposes (Collins, 2011). ...
... In the short run, however, gold is an inflation hedge only in the US, the UK, and India. j Bampinas and Panagiotidis (2015) include the long-run hedging characteristics of gold against headline, expected, and core CPI for the US and the UK. With the time-invariant method, the ability of gold to hedge against inflation, on average, is higher in the US compared to the UK. ...
Article
This study investigates gold as a hedge or a safe haven against inflation in four countries. We propose two standard and quantile techniques in the volatility models, with a time-varying conditional variance of regression residuals based on TGARCH specifications. Gold exhibits considerable evidence of a strong hedge in the US and China. Nevertheless, gold provides shelter at different times and not consistently across countries. With regards to be a safe haven, gold retains its status as a key investment in China. On the other hand, gold only plays a minor role in the UK and India. These findings indicate that gold can secure Chinese investment during the high inflationary periods, while gold is a profitable asset to hold over a long period of time in the US. In contrast, UK and Indian investors should hold a well-diversified portfolio for sustainable return and protection from purchasing power loss.
... More so, earlier studies on cointegration between gold price and inflation rate have concentrated on the case of developed economies. For example, Bampinas and Panagiotidis (2015) examined the case of the UK and the US, Wang et al. (2011) considered the case of the United States and Japan, and Aye et al. (2017) concentrated on the case of the UK. The only notable study in respect of developing countries is Kumar (2017), which examined cointegration between gold price and inflation in the case of India. ...
... It also provides new evidence on inflation persistence implication of fraction gold prices-inflation rate cointegration. Earlier studies on gold priceinflation rate cointegration do not provide implications for inflation persistence (see, for example, Wang et al., 2011;Batten et al., 2014;Bampinas and Panagiotidis, 2015;Aye et al., 2017;Kumar, 2017). In fact, Wang et al. (2011), Aye et al. (2017, and Bampinas and Panagiotidis (2015) rather used gold priceinflation rate cointegration analysis to examine the potential of gold to hedge inflation. ...
... Earlier studies on gold priceinflation rate cointegration do not provide implications for inflation persistence (see, for example, Wang et al., 2011;Batten et al., 2014;Bampinas and Panagiotidis, 2015;Aye et al., 2017;Kumar, 2017). In fact, Wang et al. (2011), Aye et al. (2017, and Bampinas and Panagiotidis (2015) rather used gold priceinflation rate cointegration analysis to examine the potential of gold to hedge inflation. This was done by normalizing cointegration relation on gold prices such that gold price is a function of inflation rate. ...
Article
In this study, we employ a recently developed Fractional Cointegrating Vector Autoregressive (FCVAR) model to analyze the relationship between gold price and inflation rate, to determine the responsiveness of inflation rate persistence of the selected countries to gold price shocks. Our analyses cover two decades; ranging from January 2001 to December 2019. We also account for country heterogeneity; specifically, due to variation in countries' level of development, income level, and monetary policy framework. Our results suggest that the effect of gold price shock lingers for a long time on inflation rate persistence of developing countries, and for a short time on inflation rate persistence of developed countries. We also find that a higher level of income is associated with lower gold price-inflation rate cointegrating persistence, but the possibility of high-income countries having higher gold price-inflation rate cointegrating persistence than low-income countries cannot be dispelled. We also find that adoption of inflation targeting monetary policy reduces gold price-inflation rate cointegrating persistence and that gold price-inflation rate cointegrating persistence is higher under limited or intermediate floating exchange rate arrangement than under free-floating and currency peg arrangement.
... Previous empirical studies find relevant synchronization among different petroleum commodities prices and volatilities -i.e., crude oil and heating oil -(see, for example, Gong et al., 2021;Naeem et al., 2021). Similarly, precious metals commodities present highly co-movement in prices and volatilities (see, Bampinas and Panagiotidis, 2015a;Li and Lucey, 2017) Our paper builds on a growing literature which studies the nexus between volatility of petroleum and precious metal markets. Ewing and Malik (2013) are the first to empirically examine the volatility of gold and oil futures using GARCH models with structural breaks. ...
... Our paper extends on this evidence of volatility spillovers across these two markets (see, for example, Mensi et al., 2013;Bampinas and Panagiotidis, 2015a;Balli et al., 2019;Bonato et al., 2020;Uddin et al., 2020;Naeem et al., 2021;Zhang et al., 2021). Mensi et al. (2013) study the volatility transmission between the S&P 500 and different commodity prices using a VAR-GARCH model. ...
... Previous empirical studies find relevant synchronization among different petroleum commodities prices and volatilities -i.e., crude oil and heating oil -(see, for example, Gong et al., 2021;Naeem et al., 2021). Similarly, precious metals commodities present highly co-movement in prices and volatilities (see, Bampinas and Panagiotidis, 2015a;Li and Lucey, 2017) Our paper builds on a growing literature which studies the nexus between volatility of petroleum and precious metal markets. Ewing and Malik (2013) are the first to empirically examine the volatility of gold and oil futures using GARCH models with structural breaks. ...
... Our paper extends on this evidence of volatility spillovers across these two markets (see, for example, Mensi et al., 2013;Bampinas and Panagiotidis, 2015a;Balli et al., 2019;Bonato et al., 2020;Uddin et al., 2020;Naeem et al., 2021;Zhang et al., 2021). Mensi et al. (2013) study the volatility transmission between the S&P 500 and different commodity prices using a VAR-GARCH model. ...
... Earlier papers revealed the ability of gold and several other metals to provide inflation hedging (e.g. Bampinas and Panagiotidis, 2015;Beckmann and Czudaj, 2013;Erb and Harvey, 2013;McCown and Zimmerman, 2006), exchange rate risk hedging (e.g. Capie et al., 2005;Hammoudeh et al., 2009;Reboredo, 2013;Reboredo and Rivera-Castro, 2014) and oil price risk hedging (e.g. ...
... Ciner et al. (2013) reported that gold can act as a safe-haven for exchange rate risk in the UK and US. While, results from Bampinas and Panagiotidis (2015) showed that silver can hedge inflation in the UK but not in the US. According to the results of Ciner (2001), stable relationship among gold and silver returns disappeared following 1990s, indicating that these assets may provide different hedging implications in managing risky portfolios. ...
Article
This paper examines the safe-haven role of copper, iron, gold, silver, and energy stocks for international equity markets during the COVID-19 pandemic. Specifically, the degree and structure of return dependence at different points of conditional return distributions are examined for the pre-COVID and post-COVID periods. The results show that copper is a weak safe-haven for the US equity market at the upper-tail of conditional distribution of cooper returns during the post-COVID period. Gold loses its hedge status during the post-COVID period while silver is a strong safe-haven against international equity markets at the upper-tail of conditional return distribution of silver. Further, iron pose weak safe-haven properties against international equity markets when iron returns are extremely positive. However, neither conventional nor green energy stocks act as safe-haven against international equity markets. Current results may provide guidance for risk management, portfolio management and policy decisions during the post-COVID-19 period.
... Silva (2014) also observes that gold prices and inflation are positively related, leading to the conclusion that the latter is a suitable determinant of the former (Bialkowski et al., 2014). In an attempt to see whether the hedging power of gold is sensitive to the kind of inflation, Bampinas and Panagiotidis (2015) show that gold hedges against core, headline and expected consumer price indices in the long-run. They further disclose that the hedging ability of gold is stronger in the U.S. than in the U.K., although silver proves unimportant in the former. ...
... These features include the role of macroeconomic indicators, asymmetries and time variation. Not accounting for them can lead to bias results (see Wang et al., 2011;Aye et al., 2017;Bampinas and Panagiotidis, 2015;Bilgin et al., 2018;Salisu et al., 2020). More so, policy makers can be informed on how best to predict investments in precious metals with inflation, whether linearly or nonlinearly. ...
Article
Against the limited evidence of inflation-hedging potential of precious metals in Africa, this study examines the possibility of the four most popular and globally traded precious metals, namely gold, platinum, silver and palladium, in hedging investors against inflation risks in six African countries known for the production of the metals. We employ different empirical techniques in order to explore the inherent statistical features of the series. On a general note, we believe more in the results of the regime-dependent model which reveals the presence of nonlinearity and time variation in the results and show improved hedging performance. Our results suggest that inflation risks can be hedged by at least one precious metal in all the selected countries. Silver and gold provide the strongest (in five countries, i.e. Ghana, Morocco, Namibia, South Africa and Tanzania) and weakest (in just one country, i.e. Namibia) hedging performances respectively. Also, Namibia is the country whose inflation risks can be hedged by the highest number of metals (i.e. gold, silver and palladium). From these findings, we suggest that investors in these countries should begin to explore the effective strength of metals against the increasing risks of inflation inherent in most African countries. Also, the influencing role of nonlinearity and time variation should not be overlooked.
... They employed cointegration technics and found evidence on the hedging ability of gold against inflation. Worthington and Pahlavani (2007) Shahbaz et al. (2014) for Pakistan and lastly Bampinas and Panagiotidis (2015) for US and UK also confirmed the hedging ability of gold against inflation. Jaffe and Mandelker (1976) attempt to investigate the hedging ability of stock market against inflation by using monthly data covering the period from 1953 to 1971 for US economy and found evidence on the hedging ability of common stocks. ...
... Some recent researches examined this relationship also with time-varying methods (e.g. Beckman & Czudaj, 2013; Batten et al. 2014; Bampinas and Panagiotidis, 2015) and Markov Switching models (He, O'Connor and Thijssen, 2018;Jaiswal and Uchil, 2018). In this study, to test whether or not gold prices, stock market and house prices are hedge against inflation three models were estimated. ...
... At the same time, strong price rises were observed for gold and silver. These trends are normally associated with hedges against inflation in fiat currencies while also linked to money supply changes [85]. ...
Article
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The coronavirus disease 2019 (COVID-19) pandemic has shaken up the socio-economic order on a global scale with interventions designed to curb the spread of the disease bearing multiple and reinforcing impacts on several aspects of economic and social lives. The effects of COVID-19 were diverse and often spilled over different or interdependent industries. Economies were hit top-down and bottom-up while businesses and individuals alike endured significant changes that altered national and international supply and demand trends for products and services. The primary and secondary sectors were especially influenced by supply shortages while services and education were largely demand-driven. Monetary policies were specifically targeted to ease these disruptions while protective measures for employees in many cases constrained business competitiveness. The present study provided a cross-sectoral (primary, secondary, tertiary, and quaternary sectors) outline of the implications and challenges since the start of the crisis, centralising important information and offering a view of the current socioeconomic situation. View Full-Text
... Against this backdrop, and in light of the well-established role of gold as a hedge against inflation (see for example, Beckmann and Czudaj (2013), Bampinas and Panagiotidis (2015a), Aye et al. ( , 2017, and Salisu et al. (2019)), agricultural commodities and oil price increases (Reboredo, 2013;Bampinas and Panagiotidis, 2015b;Balcilar et al., 2019;Tiwari et al., 2020Tiwari et al., , 2021Yousaf et al., 2021;Liu and Lee, 2022), as well as economic crises (Boubaker et al., 2020), the objective of our current paper is to determine whether an El Niño shock leads to an increase in real gold returns. We check the effect of the shock on real gold returns (instead of nominal gold returns) since an increase in the same due to El Niño events would provide us with an indication of whether gold possesses the ability to over-compensate for the inflation risks. ...
Article
Recent studies show that El Niño episodes are generally inflationary because they tend to increase the prices of agricultural commodities and crude oil. Given this, in this paper we examine the inflation-hedging property of gold (along with silver) from a novel perspective by analysing the impact of a negative shock to the negative component of Southern Oscillation Index (SOI) anomalies, i.e., El Niño shock. To this end, we apply a large-scale global vector autoregressive (GVAR) model to 33 countries covering both developed and emerging markets using quarterly data from 1980:Q2 to 2019:Q4. The GVAR methodology provides an appropriate framework to capture the transmission of global climate-related shocks while simultaneously accounting for individual country peculiarities. The results show that both gold and silver serve as good hedges in periods of inflation and rare disaster risks resulting from El Niño negative shocks. Interestingly, silver is a better hedge than gold, as implied by bigger positive real returns in response to El Niño shock. At the same time, La Niña shocks, captured by a positive effect to the positive component of SOI anomalies, fail to have a statistically significant impact on either gold or silver real returns. Overall, our results confirm the inflation-hedging benefits offered by the two precious metals, suggesting that investors can offset losses resulting from inflation-related risks stemming from El Niño events by investing not only in gold, but more so in silver.
... With the low volatility and the safest asset, the risk of gold investment tends to be more stable. Research conducted by Bampinas and Panagiotidis (2015) and Hoang, Lahiani, and Heller (2016) prove that gold can be used as a hedge. Robiyanto, Wahyudi, and Pangestuti (2017); Robiyanto (2018a) support the statement by mentioning categorized gold as a safe haven in several countries. ...
Article
Full-text available
The study aimed to analyze the effects of oil and gold price volatility on stock returns in Indonesia by comparing the period before and during the Covid-19 pandemic. The study took secondary data from the daily closing prices of oil (Brent and WTI), gold, and JCI. The analysis technique used was GARCH (1,1). The study found that oil and gold price volatility did not affect stock returns in the two periods. The impact of the Covid-19 pandemic on financial markets had yielded uncertain results. This finding supported the concept of gold as a safe haven during the financial crisis. The limitations in the study were focusing on the Indonesian capital market, and future research can compare the impact of the Covid-19 pandemic on developing countries with developed countries.
... Gold has been earlier recognized as a safe haven against global uncertainty given weak or negative correlations between this precious metal and other assets (e.g., Chua et al., 1990;Ciner et al., 2013;Hillier et al., 2006;Kaul and Sapp, 2006;Baur and Lucey, 2010;Dutta et al., 2020;Reboredo, 2013a;Dou et al., 2022). However, the hedging and safe haven properties of Gold appears to be inconstant and varying against different asset types and market conditions (e.g., Baur and Lucey, 2010;Ciner et al., 2013;Bampinas and Panagiotidis, 2015;Reboredo, 2013b;Duan et al., 2021b;Ren et al., 2022a;Ciner et al. (2013)) examine if and to what extent each of the five assets, i.e. stock, bond, crude oil, gold, and US dollar can act as a hedge and/or safe haven for each other. They find an evident safe haven role of Gold against target assets except for the crude oil. ...
Article
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This paper studies evolution of the asymmetric sheltering role of Bitcoin compared to gold against oil-related uncertainties with varying severity of the COVID-19 pandemic. Using a varying-coefficient quantile approach, we find a safe haven role of Bitcoin, and it becomes gradually stronger when the pandemic intensifies. The relationship between gold and oil markets is shown to vary with changing severity of the pandemic. We find that gold acts as an increasingly weakened diversifier as the pandemic intensifies until a level, above which its diversification gains would dissipate then. In normal market conditions, both Bitcoin and gold perform as weak hedges for oil portfolios. Our findings demonstrate that interpretation of the sheltering role of Bitcoin and gold against oil market downturns would be biased unless the role dynamics in different market conditions and pandemic severity are considered. Additional analyses reassure robustness of our findings.
... Other studies indicate the role of precious metals as a hedge against inflation, such as Adrangi et al. (2003), Lucey and Li (2015), Bampinas and Panagiotidis (2015), Zhu et al. (2018), and Salisu et al. (2019). ...
Article
Full-text available
This study examines the role of market sentiment in predicting the price bubbles of four strategic metal commodities (gold, silver, palladium, and platinum) from January 1985 to August 2020. It is the first to investigate this topic using sentiment indices, including news-based economic and consumer-based sentiments developed using different methods. We observed the role of sentiment as a reliable indicator of future bubbles for some metal commodities and found that bubbles were regularly concomitant with bearish sentiments for gold and platinum. Moreover, gold and palladium were the only commodities that experienced a bubble during the COVID-19 pandemic. Overall, our findings suggest inclusion of sentiment to the model that predicts the price bubbles of precious metals.
... Theoretically, this study extends the previous works (e.g., Bampinas & Panagiotidis, 2015;Hoang et al., 2016) by incorporating the measure of inflation's "upside risks" in the theory of interest model. Inflation risks arise from the uncertainty surrounding the realization of inflation. ...
Article
Full-text available
The main objective of this study is to examine the roles of gold as a hedge or a safe haven against inflation in Malaysia. We propose the standard and quantile techniques in the volatility models, with a time-varying conditional variance of regression residuals based on TGARCH specifications. We found that gold only plays a minor role as a hedge and safe haven against inflation since their returns do not evolve at the same pace as inflation. On the other hand, the rolling regression results reveal that shelter incidents against purchasing power loss only occasionally occur at different times and not consistently across holding periods. We conclude that gold does not have the ability to secure Malaysian investment during high inflationary periods and at all times. Thus, Malaysian investors should hold a well-diversified portfolio to earn sustainable returns and protection from purchasing power loss.
... Graph 3: Gold price Vs Inflation Graph 4: Trend Analysis of Inflation Vs Gold Price 24The relationship between gold price and inflation is shown in graph 3 and graph 4.Gold is shown to consolidate until 2001 before trending upwards until 2013, where it had a drop in price for two years before continuing to the upside. In contrast, inflation dropped significantly between 1979 and 1980 following the aftermath of the oil shock and inflation-bust campaign(Bampinas & Panagiotidis, 2015). The decline continued until the stock market crash of 1987. ...
Thesis
Gold price research has attracted considerable attention in recent years due to the sharp increasing price trend. The price of gold hit an all-time high in August 2020 as the price increased by more than 30 per cent since January despite the COVID pandemic. The main objective of this research is to examine the determinants of gold price by investigating the relationship of the four key influencing variables affecting the price of gold; the US dollar, inflation, crude oil and silver. Prior studies have primarily focused on one variable. This study contributes to research and practice by producing a comprehensive analysis of various factors and their relationship with gold to gain an in-depth understanding of the driving forces that influence the price of gold. To advance the current literature, quantitative methods were used. Data from 1979 to 2019 was used to calculate the mean, median, maximum, minimum and range for both the dependent and independent variables. A linear regression analysis was then conducted to investigate the correlation between the independent variables and gold price. Keywords: Gold price; Oil Price; Linear Regression; Inflation.
... Ciner, Gurdgiev and Lucey (2013) also prove that gold provides a currency hedge against exchange rate fluctuations in both the UK and the US, while (Białkowski, Bohl, Stephan, & Wisniewski, 2015) also identify gold as an inflation hedge, dollar hedge, safe-haven and portfolio diversifier. Finally, Bampinas and Panagiotidis (2015) agree with the inflation hedging ability of gold but reveal that it is higher in the US compared to the UK. These findings are further supported by Low, Yao and Faff (2016) who compare the safe-haven and hedging properties of precious metals with diamonds and report the superior performance of gold and silver over diamonds during extreme market conditions in developed markets of US, France, Germany and Australia ...
... He found partly same results for India but there was no evidence that gold can be a hedge against inflation. (Bampinas & Panagiotidis, 2015) analyzes the long-run hedging ability of two major metal commodity (gold and silver) prices against consumer price index for United States and the United Kingdom. They used a dataset more than two centuries by using time-invariant and time-varying cointegration methodology. ...
... More recent studies argue that time series dynamics such as structural breaks, nonlinearity (asymmetry), and the time-varying nature of the relation between gold prices and goods prices must be taken into consideration (Bampinas and Panagiotidis, 2015;Batten et al., 2014;Beckmann and Czudaj, 2013;Hoang et al., 2016;Lucey et al., 2017;Wang et al., 2011;Worthington and Pahlavani, 2007). Therefore, they employ state-of-the-art econometric techniques to model these dynamics. ...
Article
Purpose The purpose of this study is to explore the role of gold as a hedge against inflation in the case of the United Arab Emirates. Design/methodology/approach The study utilizes monthly data on the local sharia-compliant spot gold contract traded on the Dubai Gold and Commodity Exchange (DGCX) and the corresponding consumer price index series over the period December 2015 to January 2021. The econometric approach employed by the study involves a unit root testing procedure that allows the timing of significant breaks to be estimated. A cointegration analysis is then conducted using a nonlinear autoregressive distributed lag (NARDL) model, taking into consideration the presence of structural breaks in addition to short- and long-run asymmetries. Findings The results reveal that consumer and gold prices are cointegrated, which implies that investing in gold can hedge against inflation in the long run. No sufficient evidence, nonetheless, is found in support of the ability of gold to serve as a hedge against inflation in the short run. Originality/value The findings have several important policy implications for policymakers and investors that are further discussed in the study.
... Predictions in this area play a vital role in portfolio optimization and risk management. Indeed, investors are attracted to commodities due to their inflation-hedging properties (e.g., Beckmann and Czudaj 2013;Bampinas and Panagiotidis 2015;Levine et al. 2018;Umar et al. 2019), and their possible contribution to diversifying risks (e.g., Gagnon et al. 2020). ...
Article
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The aim of this study is to test the ability of the yield curve on US government bonds to forecast the future evolution in the prices of commodities often used in as raw materials. We consider the monthly prices of nine commodities for more than 30 years. Our findings, confirmed by several parametric and non-parametric tests, are robust and indicate that the ability to forecast future performance changes over time. Specifically, between 1986 and the early 2000s the yield curve was quite successful in forecasting monthly changes in commodity prices, but that success diminished in the period following. One possible explanation for this outcome is the increased flow of capital into the commodity market resulting in stronger correlations with the equity markets and a breakdown of the obvious relationship between commodities and business cycle. Our findings are important for asset pricing, commodity traders and policy makers.
... This integration becomes more sensitive for India as it is a major oil-importing player in the world (replaced Japan in 2015 as a third largest importer after the US and China) Our next leading candidate: 'gold' attracts investors for its simple market, its strategic use and a sense of certainty during financial distress (Baur & McDermott, 2010). Serving as the best-preserving currency value product for a long duration (Baur & Lucey, 2010;Baur & McDermott, 2010), high liquidity (Bampinas & Panagiotidis, 2015), store of wealth, derivative valuation (Gaur & Bansal, 2010;Yahyazadehfar & Babaie, 2012), hedge for diversification at distress (Aggarwal & Lucey, 2007;Arouri et al., 2015) are few other features. Even though gold creates a hedge for diversification (Conover et al., 2009); volatile gold prices may lead to negative equity return (Riley, 2010). ...
Article
The current work adds to the present research by exploring the asymmetric impact of gold prices, interest rates, oil prices and the currency exchange movements in the Indian equity market. The study considers the monthly price of interest rate, crude oil, USD versus INR, BSE Sensex closing value and the prices of gold. A non-linear method promoted by Shin et al. (2014) is applied to 27 years of data from 1990 to 2018 to examine short-term and long-term asymmetrical relationships. The empirical outcome revealed that the variables analysed have an asymmetrical influence on the equity index. Positive shocks on crude oil prices affect the stock index negatively, while gold price changes tend to generate a favourable effect on the stock indices in a short interval yet suggest the adverse impact in the long-run. A positive short and long-term reaction on the equity indices is seen due to the negative move in currency exchange. The results are essentially significant due to the commodities’ volatility pattern that plays a determining role to value derivatives and hedging instruments. The asymmetric relation of explanatory variables with stock index offers a superior understanding of the risky environment, especially in emerging financial markets.
... Our findings highlight the importance of accounting for the dynamic relationship between inflation and cryptocurrencies, in keeping with previous results for gold [Conlon et al., 2018, Bampinas andPanagiotidis, 2015]. This builds upon the unconditional findings of Blau et al. [2021], where changes in Bitcoin Granger cause changes in the forward inflation rate, indicating that Bitcoin might act as a hedge against forward inflation expectations. ...
Article
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This letter revisits the time-series relation between cryptocurrency prices and forward inflation expectations. Using wavelet time-scale techniques, a positive link between cryptocurrencies and forward inflation rates is identified, focused on a brief period surrounding the onset of the COVID-19 pandemic. This coincides with a rapid and synchronized decrease in cryptocurrency prices and forward inflation expectations, followed by a swift recovery to pre-crisis levels. Outside of the crisis period, we find no clear evidence of any inflation hedging capacity of Bitcoin or Ethereum during times of increasing forward inflation expectations.
... The inflation-hedging capacity of commodities has been widely studied. Numerous studies document the inflation-hedging properties of both individual commodities, such as gold, silver, energy, or timber (Fulli-Lemarie 2012; Bampinas and Panagiotidis 2015;Salisu, Ndako, and Oloko 2019;Zhang et al. 2011) and aggregate commodity baskets (Crawford, Liew, and Marks 2013;Fulli-Lemarie 2012;Zaremba, Umar, and Mikutowski 2019). Such studies frequently rely on data going back just a few decades-although some have used data going back to the 19th century (Bampinas and Panagiotidis 2015). ...
... Gold serves as a best preserving purchasing power over a long period due to its high liquidity; a hedge against inflation; owing to its favorable correlation (Bampinas & Panagiotidis, 2015), a source of wealth, derivative valuation, and so forth (Gaur & Bansal, 2010;Yahyazadehfar & Babaie, 2012). In addition, crude as a principal indicator of development in currency exchange around the globe (Amano & Van Norden, 1998). ...
... The study by Bampinas and Panagiotidis (2015) involved the long-run hedging properties of gold against headline, expected, and core CPI for the US and the UK. With the time-invariant method, the capability of gold to hedge against inflation, on average, is higher in the US compared to the UK. ...
Chapter
This study purposes of investigating the roles of gold as a hedge or a safe haven against inflation in Canada. We utilize the standard and quantile techniques in the volatility models, with the time-varying conditional variance of the regression residuals based on the TGARCH descriptions. We found that gold only plays a minor role as a hedge and safe haven against inflation since their returns do not evolve with the same rhythm as inflation. The rolling regression analysis, on the other hand, demonstrates that the incidents of refuge against purchasing power loss only occasionally occur at different times and not consistently across holding periods. These findings indicate that gold does not have the ability to secure Canadian investment during high inflationary periods and at all the time. Thus, Canadian investors should hold a well-diversified portfolio to earn sustainable return and protection from purchasing power loss.
... From the past literature, we find that Frankel and Hardouvelis (1985), and Cornell and French (1986) underscore the impact of the announcements of money supply on the gold and silver prices. Similarly, Bampinas and Panagiotidis (2015) test the performance and the ability of the long-run hedging of gold and silver to hedge against changes in macroeconomic indicators such as the consumer price index. They find that gold can be completely hedged, while silver cannot. ...
Article
The objective of this paper is to examine the frequency domain connectedness among the returns series of crude oil, stock market index and four metal prices covering the period 1990M1-2017M3. To realize our objective, we have employed a recently introduced frequency domain spillover methods due to Barunik and Krehlik (2017). Furthermore, a network analysis is undertaken on the pairwise correlations and net directional matrix obtained from frequency domain spillover approach. In general, we find that the degree of connectedness decreases with the increase in the frequency. Particularly, with the lowest frequency i.e., 1 to 6 months, makes the largest contribution to total connectedness, followed by the frequency corresponding to more than 12 months, and 6 to 12 months, respectively. Our overall results suggest that titanium, platinum, gold and silver are the net contributors to volatility, while steel, crude oil, stock prices, and palladium are net receivers of volatility. These empirical findings are helpful in devising policies that avert contagion risk during period of economic rigidity and uncertainty.
... With the advent of data on futures contracts, considerable research now explores pricing interdependencies over the last thirty to fifty years. Studies such as Bampinas and Panagiotidis (2015) and Tiwari et al. (2019) have examined the price behaviour of stocks and commodities over periods of two to three centuries. Brown and Hopkins (1956) and Zaremba, Bianchi, and Mikutowski (2019a), (2019b)), on the other hand, have considered commodity price relationships using time series data from up to seven centuries. ...
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We examine interdependencies between agricultural, industrial, and energy commodity price indices suing data sets from more than seven centuries. To this end, we apply wavelet coherence and wavelet phase difference. There is a high coherence between prices for all three commodity-groups with energy prices now leading both agricultural and industrial commodity prices. Also, the role of energy as a leading series has increased over time.
... Gold serves as a best preserving purchasing power over a long period due to its high liquidity; a hedge against inflation; owing to its favorable correlation (Bampinas & Panagiotidis, 2015), a source of wealth, derivative valuation, and so forth (Gaur & Bansal, 2010;Yahyazadehfar & Babaie, 2012). In addition, crude as a principal indicator of development in currency exchange around the globe (Amano & Van Norden, 1998). ...
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The research seeks to assess whether the Indian capital market is following a sustainable equilibrium relationship with gold, oil and currency exchange in long and short intervals or not. The study uses autoregressive distributed lag (ARDL)‐unrestricted error correction model (UECM) Bounds test over 25 years from 1990 to 2016. The result indicates that equity indices are cointegrated and has a relationship for a long run with gold and currency exchange. Volatility in gold prices and currency exchange affects equity performance for a long and short interval of time. Only oil price movements affect the currency exchange rate in long‐run. No other variable makes any impact on it in short‐run. The outcome supports gold that appeared as an alternative investment asset class in the investors' community. The report features the necessity to structure policies so that currency exchange gestures and financial return volatility can be monitored and controlled with gold and oil prices as instruments.
... Therefore, economic liaisons increase their gold holdings against inflation with the expectation of a further rise in inflation (Baur and Lucey 2010). During the economic slumps, commodities (gold) create a sense of certainty and opportunity for investors to invest a safe investment (gold) because of its positive correlation with inflation (Bampinas and Panagiotidis 2015). Investment in gold can also be considered as a diversifier of a portfolio due to its low correlation with other assets, which also reduces the overall risk of the portfolio. ...
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In this study, we examine an empirical relationship between stock market volatility with the exchange rate and gold prices of an emerging market, “Pakistan”, employing daily and monthly data (PSX-100 Index) covering from 2001: Q3 to 2018: Q2. The study explains the average stock returns by applying MGARCH. Further, it investigates that the volatility in the exchange rate (Rs/US $) and gold prices remain equally strong in bearish and bullish conditions of the stock market by using a quantile regression approach (2001–2018). Additionally, the sample period is divided into two split samples that cover (2001–2007) and (2008–2018) respectively, based on global financial crises and applied similar analysis. The overall results show the negative impact of the exchange rate and gold price volatility on the stock market performance daily (monthly), supporting the argument that the stock market considers the exchange rate and gold price fluctuations as an adverse indicator and reacts negatively.
... The third strand of literature examines the macroeconomic drivers of gold and other metal prices. Some studies highlight the role of gold and silver as a hedge for inflation with some differences in the empirical results (Bampinas and Panagiotidis, 2015). Roache and Rossi (2010) the response of metal prices to macroeconomic news announcements. ...
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In this study, we examine the role of global economic conditions in the predictability of gold market volatility using alternative measures. Based on the available data frequency for the relevant series, we adopt the GARCH-MIDAS approach which allows for mixed-data frequencies. We find that global economic conditions contribute significantly to gold market volatility, albeit with mixed outcomes. While the results also lend support to the safe-haven properties of the gold market, the outcome can be influenced by the choice of measure for global economic conditions. For completeness, we extend the analyses to other precious metals (palladium, platinum, rhodium and silver) and find that the global economic conditions forecast the return volatility of the gold market better than these other precious metals. Our results are robust to multiple forecast horizons and offer useful insights on the plausible investment choices in the precious metals market.
... Gold and oil are the most actively traded commodities in the world. Gold protects against inflation better than other financial instruments such as stocks (Bampinas and Panagiotidis, 2015;Gokmenoglu and Fazlollahi, 2015;Gorton and Geert Rouwenhorst, 2006;Zhu et al., 2016). Rapid growth and huge energy demands influence the world's energy and financial markets (Wang and Wang, 2019), consequently increase the demand for energy-related commodities like oil. ...
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In this paper, we investigate the volatility spillover effect among the global commodity futures (including both energy and metal futures; global stock markets (covering both Developed and Emerging Markets); the US bond market and the US Dollar index by employing the dynamic connectedness approach of (Diebold and Yilmaz, 2012, 2014) based on the time-varying parameter vector autoregressive (TVP-VAR) model and using daily data for the period from January 3, 1992 to December 27, 2019. Our results indicate a moderate connectedness among the volatilities changing over time and approaching its peak level during 2007/08 global financial crises. In addition, we determine the optimal hedge ratios and portfolio weights for the commodity investors and portfolio managers. Our results indicate that for the equity market volatility investors, the highest hedging effectiveness can be reached by taking short positions in energy futures (such as natural gas), on the other hand for both the US bond and US Dollar volatility investors it can be reached by taking short positions in metal futures (such as gold).
... From the past literature, we find that Frankel and Hardouvelis (1985), and Cornell and French (1986) underscore the impact of the announcements of money supply on the gold and silver prices. Similarly, Bampinas and Panagiotidis (2015) test the performance and the ability of the long-run hedging of gold and silver to hedge against changes in macroeconomic indicators such as the consumer price index. They find that gold can be completely hedged, while silver cannot. ...
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To this end, we employ the recently developed frequency domain rolling-window analysis (which is able to show that transitory high frequency shocks are not equal to permanent low frequency shocks over time), as well as the conditional, partial conditional, difference conditional approaches, in addition to the Toda Yamamoto and frequency domain Granger Causalities methods. Further, the relationship is examined in conditional and unconditional frameworks. To condition the relationship, three macroeconomic variables, namely interest rate, BSE stock index and inflation rate are used as the control variables. The results uncover some interesting predictability patterns that vary along the spectrum. Specifically, by applying the rolling-window analysis, we find mixed results of the causality between the gold and silver markets based on the frequencies of different lengths. Our results provide policy inputs, assist investors and hedgers who wish to invest in these markets by constructing strategies and diversify their portfolios based on different frequencies.
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This study investigates the safe haven role of precious metals for the global Environmental, Social, and Governance (ESG) stocks, based on the cross-quantilogram analysis and the quantile time–frequency connectedness framework. We show that palladium can serve as a short-term safe haven for the North America ESG market, Europe ESG markets, and Asia-Pacific developed ESG markets, whereas gold acts as a weak safe haven most of the time. The safe haven role is robust during the COVID-19 period. We also explore the risk spillover patterns between precious metal and ESG markets and find that gold and palladium remain the net risk receivers even under extreme negative market conditions. We finally provide implications for the safe haven portfolio allocated between precious metals and ESG stocks, confirming the usefulness of gold in gaining diversification benefits and reducing downside risks. Our findings contribute to the practice of socially responsible investing in terms of portfolio and risk management.
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The COVID-19 pandemic has led to extensive news coverage, causing investor sentiment to swing, which has further increased financial market price volatility. There is an increasing need to find a hedge against sentiment risk. This paper examines the hedge capabilities of gold and Bitcoin against COVID-19-related news sentiment (CNS) risk under a nonlinear autoregressive distributed lag (NARDL) model. Our empirical results reveal that there is an obvious asymmetric effect from the CNS on gold prices in the short run and that the decrease in the COVID-19-related news index would have a greater impact on gold prices than when it increases. The impact of CNS on Bitcoin prices is asymmetric in the long and short term, especially in the long term. In addition, we conclude that gold is a hedge against CNS risk in the long term, and the hedging effect of Bitcoin is mainly reflected in the short-term.
Chapter
In this study, a nonlinear two-regime Smooth transition Regression (STR) approach is applied to examine the behavior of three commodity prices (energy, non-energy, and precious metals). In particular, the study seeks to reveal the main factors that determine the commodity price changes. The results are compared between logistic versus exponential transition functions. The data used is monthly data from 1995 to 2018. The result shows that the transition in energy commodity and precious metal sectors are more sensitive and reacts immediately to the threshold variable of its history lag path. Meanwhile, the transition in the non-energy commodity sector fluctuates the least. Besides, crude oil prices influence the prices of the commodities for all three sectors, and the impact is the highest on the energy commodity sector. Consumer price inflation is one of the determinants for commodity price inflation in non-energy commodity and precious metal sectors, where the effect is higher in the latter. In addition, gross domestic product and the United States central bank policy rate affect the commodity price inflation of the non-energy commodity and precious metal sectors, respectively. Furthermore, the dynamic effects in energy commodity and precious metal sectors are more persistent, which indicates a longer time for the inflation to smooth down. Conversely, the less persistency of the dynamic effects in the non-energy commodity sector shows that inflation takes a shorter time to smooth down. The findings might provide useful information to the policymaker in policy plan/decision. Early preventive action can be taken to reduce the negative shocks due to commodity price fluctuations.KeywordsCommodity priceNonlinearitySmooth transitionPrice persistencyThreshold variable
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Conjugate gradient (CG) methods embody a category of unconstrained optimization algorithms which are known to be of low memory requirements and possess the global convergence properties. In this chapter, we present a novel three term (CG) method based on the idea of the shifted variable metric approach. Under certain conditions, the global convergence result of the proposed method is demonstrated and numerical result have shown that the new method outperforms other methods in comparison based on some benchmark optimization test functions. However, we present the application of the new method on a problem of inflation rate in Nigeria from 2010 to 2018. The outcome has shown that the new method has relatively less error and can surely surrogate an LSM in regression analysis.
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Using threshold and piecewise regression models on monthly data (January 1969–March 2021), we examine the asymmetric effects of inflation and the US ten-year Treasury bond interest rate on gold price returns, identifying two distinct regimes. Inter alia, it is found that the responsiveness of gold returns to changes in inflation and interest rate depends on the magnitude of monthly inflation itself. Given the recent multi-trillion-dollar stimulus packages, the US is likely to switch into a ‘high’ inflation regime (as defined by our endogenously determined threshold), leading to gold once again becoming a potent hedge against inflation. The results support the view that when monthly inflation in the US exceeds 0.55%, gold exhibits significant responses to changes in both inflation and the ten-year Treasury interest rate. However, when inflation is moderate or low, gold remains somewhat non-responsive. We thus argue that such asymmetric and size-dependent responses are the main causes of the lack of consensus in the literature regarding the hedging capability of gold.
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This paper investigates the volatility spillover effects and the dynamic relationships among WTI crude oil, gold and the Chinese stock markets of new energy vehicle, environmental protection, new energy, coal & consumable fuels, high and new technology, by adopting the method of Diebold and Yilmaz, 2012, Diebold and Yilmaz, 2014 based on TVP-VAR model. The results indicate that there exists a high interdependence among all analyzed assets, and the total volatility spillover has a sharp increase under the major crisis events. On average, WTI crude oil and gold are the net receivers of the systemic shocks, while all of the analyzed stock markets are the net transmitters of the systemic shocks. Besides, the Granger causality test shows that the volatility of each asset can Granger cause the total connectedness index. Finally, we also calculate optimal hedge ratios, portfolio weights and the corresponding hedging effectiveness based on DCC-GARCH-t copula model. The empirical results show WTI crude oil and gold are cheap hedging tools. When investing a small part in WTI crude oil and a large part in the analyzed stock markets, high hedging effectiveness could be achieved.
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In the recent era, gold is considered an essential investment source, a source of hedging inflation, and a medium of monetary exchange. The gold and exchange rate nexus become prominent after events like sovereign debt crisis, subprime mortgage crisis, low-interest rate problem, and global financial market solvency. These events attract the attention of researchers and academician for investigating the dynamics of the relationship between gold and exchange rates, and the majority of the studies discusses the linear dynamics, but the non-linear dynamics are ignored. Therefore, the current research investigates the non-linear dynamics of gold price and exchange rate relationship in G7 countries using the new technique named the nonparametric causality approach. This study uses monthly data from the years 1995(January)-2017 (March). The empirical results show that exchange rate return causes gold prices in four out of G7, especially at the low tails. This study also gives valuable insights for monetary policymakers, gold exporter’s international portfolio managers, and hedge fund managers.
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Gold is usually regarded as having the potential to hedge or to act as a safe haven in the financial market. Does this follow onto the oil market and if so at what frequencies and to what extent? To answer this we integrate a two-stage framework to investigate the nonlinear oil-gold relationship using the GARCH-EVT-VaR model and the continuous wavelet transform. We also explore the multiscale robust economic determinants of gold's hedging intensity for oil using extreme bound analysis (EBA). The result shows that gold could hedge against oil price fluctuations across time horizons on nearly half of the occasions. The stock market is found to be the most robust determinant but the influencing strength is small. Interest rates have a strong impact on gold's hedging property but are not robust in some time scales. Further, the strength of influencing factors in short-term time horizons is relatively larger than it in long-term time horizons. Moreover, gold could also provide strong safe-haven power against the extreme oil price movements during about half of the cases. And the safe-haven capability of gold versus extreme oil prices has relatively better performance in medium-and long-term time horizons.
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We compare the New Keynesian and Austrian explanations for low interest rates in the light of the Corona crisis. From a New Keynesian perspective low interest rates are the result of structural changes in society and the economy as well as the cyclical downswing triggered by the Corona pandemic. In contrast, from the perspective of Austrian economic theory, interest rates have been pushed down on trend by central banks for a long time to stimulate growth, with the global financial crisis of 2007/08 and the Corona crisis of 2020 acting as powerful accelerators of the euthanasia of interest. New Keynesian theory would suggest that interest rates can be adjusted upward again when conditions change, without creating economic and financial disturbances. Against this, Austrian theory finds that central banks have backed themselves into a corner by creating persistent low-interest expectations.
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Niezwykle ważnymi i strategicznymi towarami w inwestycjach są złoto, ropa naftowa i pszenica. Te trzy surowce odgrywają dominującą rolę na światowych rynkach, dlatego też identyfikacja związków między nimi stanowi ważki i interesujący problem badawczy. Otrzymane wyniki badań wskazują na istnienie dodatniej i istotnej statystycznie zależności między cenami ropy naftowej oraz cenami złota i pszenicy. Na podstawie testu Grangera wykazano, że zmiany cen ropy naftowej mają istotny statystycznie wpływ na zmiany cen złota i pszenicy, a nie na odwrót. Na podstawie analizy skumulowanej funkcji reakcji na impuls pokazano, że w odpowiedzi na szok w postaci wzrostu cen ropy naftowej ceny zarówno złota, jak i pszenicy wzrastają. Wyniki badań są zbieżne z wynikami opisanymi w literaturze przedmiotu, w której bowiem dominuje przekonanie, że relacja między badanymi surowcami jest na ogół dodatnia, o ile w ogóle istnieje. Należy podkreślić, że najnowsze publikacje, w których zastosowano zaawansowane modele ekonometryczne, wskazują na nieliniowość i asymetryczność zależności między cenami ropy naftowej oraz złota i pszenicy. Ich autorzy podkreślają, że związek między badanymi surowcami nie jest zawsze dodatni i jego kierunek zależy między innymi od sytuacji na rynkach finansowych. Wyniki przeprowadzonego testu Bai–Perrona potwierdziły, że w analizowanych relacjach występowały zmiany strukturalne, a kierunek badanych zależności przybierał różny znak.
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This study examines the time-series relation between Bitcoin and forward inflation expectation rates. Using a vector autoregressive process, we find that changes in Bitcoin Granger cause changes in the forward inflation rate. Furthermore, imposing an exogenous shock to Bitcoin’s price results in a persistent increase in the forward inflation rate. Our findings provide support for the notion that Bitcoin may be used as a hedge against inflation as changes in the price of Bitcoin tend to lead changes in the expected inflation.
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The study has two main objectives: firstly, to examine the opportunity of the Momentum and Contrarian investment strategy for three different monetary systems to trade currencies in Forex markets using Symlet wavelet decomposition approach. Secondly, to examine the co-movements between the three monetary systems using wavelet coherence analysis. The findings indicate that an investor with momentum strategy can consider investing in Bitcoin and Gold market, while the contrarian investment strategy is more advisable for the fiat money market during crisis period. Furthermore, the wavelet coherence analysis indicates that Bitcoin currency is the most leading monetary system during the Covid-19 pandemic crisis, followed by gold. However, US dollar mostly leads Bitcoin during non-crisis periods, while Gold is found to lead the US dollar throughout the sample period of the study. This suggests that the cryptocurrency system or gold standard should be considered as the alternative monetary system for better economic stability specially during the crisis period. Moreover, Bitcoin and gold had an anti-phase correlation before the Covid-19 pandemic crisis, which implies better benefits of hedging in the non-crisis period, while during a crisis they are moving together across different horizons. In contrast, Bitcoin and Fiat Money are strongly correlated during non-crisis periods, while during covide-19 pandemic crisis the correlation is statistically insignificant. Overall, the outcomes offer significant guidance for policymakers in understanding which monetary system leads to better economic stability during the crisis period and provides many implications for market players such hedging and Diversification investments strategy in forex markets.
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Accurate measurement of relationship between assets is sensitive to different market conditions in different horizons and has implications for portfolio optimization. Cryptocurrencies are new category of assets that can reduce the risk of well‐diversified portfolio including gold. The paper explores the connections between seven cryptocurrencies and gold at bear (bull) markets across time to uncover the hedging properties of cryptocurrencies for gold investors. Wavelet technique was used to decompose the daily return series of the assets into short‐, medium‐ and long‐term frequencies. Quantile regression (QR) and quantile‐in‐quantile regression (QQR) were applied on the decomposed series to establish the association between the assets over 19 quantiles (τ = 0.05 to 0.95). QR results show all cryptocurrencies as hedges for gold regardless of market regime in the medium to long‐terms. QQR results depict inverse association at bear market but positive association at bull market across time suggesting hedging possibilities at bear markets. Our study provides precise information to investors, regulators and policy makers on risk mitigating strategies for extreme gold market fluctuations across time and market states.
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The Outbreak of the COVID-19 Pandemic has caused unprecedented risk and uncertainty in the global financial markets. The shattered investor’s faith in the Global Financial system has stimulated the need to explore safe haven assets to mitigate risk and safeguard wealth during such turmoil. Therefore, this paper addresses the widely mooted hedge and safe haven property of gold against extreme downturns in the stock market energy sector indices during COVID-19 distress. The sample countries considered comprises of the USA, Saudi Arabia, UAE, Russia, Canada, India and China being strategically linked to gold and oil commodities. Splitting the sample period into Pre-COVID period from 30th June 2019 to 30th December 2019 and During-COVID period from December 31, 2019 to June 30, 2020 the study employs bivariate cross-quantilogram of (Han et al., 2016) to examine directional predictability in quantiles between gold and energy sector indices. The results confirm the inability of gold to showcase its pronounced hedge and safe haven role before the COVID-19 crises. Specifically, Countries such as Saudi Arabia, Russia and Canada show a significant negative predictability from energy sector indices to gold thereby indicating its safe haven role during COVID-19 crises.
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This paper deals with the analysis of silver prices and the influence of solar energy on its behaviour. For this purpose, the analysis uses long memory methods based on fractional integration and cointegration. The results indicate that the two variables are very persistent, though any long run equilibrium relationship between them is not observed. Nevertheless, the results illustrate some short-run negative effects from solar energy capacity on silver prices.
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Bu çalışmada, Türkiye’de 2000 ile 2017 yılları arasında üçer aylık külçe/gr altın fiyatı ile belli başlı makro ve finansal değişkenler (altın ithalat miktarı, dış ticaret endeksi ve döviz kuru gibi) arasındaki ekonomik ilişki, istatistiksel olarak modellendirilip; açıklanmaya çalışılmıştır. Çalışmanın temel amacı altın ithalat miktarı, altın piyasası endeksi, altın işlem miktarı, dış ticaret endeksi, USD kuru ve Avro kurundaki çeyrek dönemlik değişimler gibi değişkenlerin bir bütün olarak külçe/gr altın fiyatı üzerinde anlamlı bir etkisinin olup olmadığını araştırmaktır. Aynı zamanda, altın fiyatıyla bu değişkenler arasında karşılıklı anlamlı ilişkiler olup olmadığı; varsa bu ilişkilerin dereceleri araştırılmaktır. Yapılan basit regresyon analizi sonucu, cumhuriyet altını fiyatı, brent petrol fiyatı ve dış ticaret endeksinde oluşan değişikliklerin, altın fiyatını aynı (pozitif) yönlü etkilediği; altın piyasası endeksi, altın işlem miktarı ve altın ithalat miktarındaki değişikliklerin, altın fiyatını ters (negatif) yönde etkilediği görülmektedir.
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This paper re-investigates the time-varying impacts of economic growth on carbon emissions in the G-7 countries over a long history. In doing so, the historical data spanning the period from the 1800s to 2010 (as constructed) for each country is examined using the time-varying cointegration and bootstrap-rolling window estimation approach. Unlike the previous environmental Kuznets curve (EKC) studies, using this methodology gives us avenue to detect more than one, two, or more turning points for the economic growth-carbon emissions nexus. The empirical findings show that the nexus between economic growth and carbon emission seems over a long history to be M-shaped for Canada and the UK; N-shaped for France; inverted N-shaped for Germany; and inverted M-shaped (W-shaped) for Italy, Japan, and the USA. In addition, the possible validity of EKC hypothesis is examined for both the pre-1973 and post-1973 sub-periods. Based on this investigation, we found that an inverted U-shaped is confirmed only for the pre-1973 period in France, Italy, and the USA. These empirical evidences provide new insights to policy makers to improve environmental quality using economic growth as an economic tool for the long run by observing changes in the environmental impact of this growth from year to year.
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The economics profession has an unfortunate tendency to view recent experience in the narrow window provided by standard datasets. 1 It is particularly distressing that so many crosscountry analyses of financial crises rely on debt and default data going back only to 1980, when the underlying cycle can be a half century or more long, not just 30 years. 2 This paper attempts to address this deficiency by employing a comprehensive new long-term historical database for studying debt and banking crises, inflation, and currency crashes. 3 To construct our dataset, we build on the work of many scholars as well as a considerable amount of new material from diverse primary and secondary sources. The data covers 70 countries in Africa, Asia, Europe, Latin America, North America, and Oceania. 4 The range of variables encompasses external and domestic debt, trade, GNP, inflation, exchange rates, interest rates, and commodity prices. 5 Our analysis spans over two centuries, going back to the date of independence or well into the colonial period for some countries.
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We examine the long term dynamic relation between inflation and the price of gold. We begin by showing that there is no cointegration between gold and inflation if the volatile period of the early 1980s is excluded from the data. However, we are also able to demonstrate that there is significant time variation in the relation, such that comovement between the variables has indeed increased in the last decade. Examination of the underlying macroeconomic factors that could generate time variation in the gold–inflation linkage suggests gold׳s sensitivity to inflation is related to interest rate changes, a finding that highlights the monetary nature of gold as a commodity.
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Let n observations Y 1, Y 2, ···, Y n be generated by the model Y t = pY t−1 + e t , where Y 0 is a fixed constant and {e t } t-1 n is a sequence of independent normal random variables with mean 0 and variance σ2. Properties of the regression estimator of p are obtained under the assumption that p = ±1. Representations for the limit distributions of the estimator of p and of the regression t test are derived. The estimator of p and the regression t test furnish methods of testing the hypothesis that p = 1.
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We propose a time-varying vector error correction model in which the cointegrating relationship varies smoothly over time. The S. Johansen setup [J. Econ. Dyn. Control 12, No. 2–3, 231–254 (1988; Zbl 0647.62102); Econometrica 59, No. 6, 1551–1580 (1991; Zbl 0755.62087)] is a special case of our model. A likelihood ratio test for time-invariant cointegration is defined and its asymptotic chi-square distribution is derived. We apply our test to the purchasing power parity hypothesis of international prices and nominal exchange rates, and we find evidence of time-varying cointegration.
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Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt and banking crises. We test three related hypotheses at both “world” aggregate levels and on an individual country basis. First, external debt surges are an antecedent to banking crises. Second, banking crises (domestic and those in financial centers) often precede or accompany sovereign debt crises; we find they help predict them. Third, public borrowing surges ahead of external sovereign default, as governments have “hidden domestic debts” that exceed the better documented levels of external debt. (JEL E44, F34, F44, G01, H63, N20)
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This note tests for the presence of a stable long-run relationship between the price of gold and inflation in the United States from 1945 to 2006 and from 1973 to 2006. Since both the gold market and the inflationary regime have been subject to structural change over time, a novel unit root testing procedure is employed which allows for the timing of significant breaks to be estimated, rather than assumed exogenous. After taking these breaks into account, a modified cointegration approach provides strong evidence of a cointegrating relationship between gold and inflation in the post-war period and since the early 1970s. The results lend support to the widely held view that direct and indirect gold investment can serve as an effective inflationary hedge. Yes Yes
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This paper attempts to reconcile an apparent contradiction between short-run and long-run movements in the price of gold. The theoretical model suggests a set of conditions under which the price of gold rises over time at the general rate of inflation and hence be an effective hedge against inflation. The model also demonstrates that short-run changes in the gold lease rate, the real interest rate, convenience yield, default risk, the covariance of gold returns with other assets and the dollar/world exchange rate can disturb this equilibrium relationship and generate short-run price volatility. Using monthly gold price data (1976–1999), and cointegration regression techniques, an empirical analysis confirms the central hypotheses of the theoretical model.
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The endogenous two-break unit root test of Lumsdaine and Papell is derived assuming no structural breaks under the null. Thus, rejection of the null does not necessarily imply rejection of a unit root per se, but may imply rejection of a unit root without break. Similarly, the alternative does not necessarily imply trend stationarity with breaks, but may indicate a unit root with breaks. In this paper, we propose an endogenous two-break Lagrange multiplier unit root test that allows for breaks under both the null and alternative hypotheses. As a result, rejection of the null unambiguously implies trend stationarity. Copyright (c) 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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This paper studies how the Hodrick-Prescott filter should be adjusted when changing the frequency of observations. It complements the results of Baxter and King (1999) with an analytical analysis, demonstrating that the filter parameter should be adjusted by multiplying it with the fourth power of the observation frequency ratios. This yields an HP parameter value of 6.25 for annual data given a value of 1600 for quarterly data. The relevance of the suggestion is illustrated empirically.
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We evaluate the usefulness of the Hodrick-Prescott (HP) filter as a proxy for rational expectations, using long runs of annual US inflation data. Our conclusion is that while the HP series are not fully rational in the sense of Muth (1961), they do generally meet the criterion of `weak rationality' recently proposed by Grant and Thomas (1999). They are also rational proxy predictors of direction for, following Merton (1981), agents would not change their prior in the opposite direction to these `forecasts'. However, smoother HP `forecasts' are more prone to inefficiency and less useful predictors of direction.
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