A causal study on gold, SENSEX, and gold exchange traded funds

Abstract

Gold exchange traded funds help investors to generate the returns based on the movements of underlying commodity. In current scenario, gold ETFs are emerging as one of the best ETFs for the investments. The present study intended to determine the causal relationship between spot prices of gold, SENSEX, and ten selected BSE listed Gold ETFs. The closing prices gold ETFs, SENSEX and spot prices of gold was collected during 2015–2018. The study applied ADF root test, co-integration test, and Granger causality test to study the causal relationship. The results of the study revealed that out of ten, six gold ETFs has significant causal relationship with gold price and only two schemes has significant relationship with BSE SENSEX during 2015–2018. The study concluded that gold ETFs are largely affected by the spot price movements of gold. Therefore, an investor must understand the pricing dynamics of the underlying asset of ETF.