Dynamic co‐movements across forex, gold, crude oil and Indian equity market

Abstract

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.