Linear and nonlinear asymmetric relationship in crude oil, gold, stock market and exchange rates: An evidence from the UAE

Abstract

This study examines dynamic relationship among the macroeconomic variables represented by the international oil and gold prices, exchange rates and stock market index in the context of UAE's economy. The UAE is known as a major player in trading both oil and gold in the global market. Daily data for the period ranging from 19th March 2015 to 8th October 2022 is used for this study. Autoregressive distributed lag (ARDL) model is applied in both linear and non-linear specifications to explore co-movement among the variables under study. While the estimated parameters from linear ARDL model indicate the absence of any co-integration among gold, oil and stock market, the non-linear ARDL model however, does indicate and validate the presence of long-run asymmetric relation among these markets. Exchange rates play a significant role both in the short as well as in the long run. Besides, the study observes that negative shocks do have different scale of impact than the positive ones. Therefore, the present study concludes that a non-linear approach is best suited to understand the dynamics of these markets. The findings of this study have important implications for policy makers and other stakeholders as they must ensure that the direction of shocks is taken into consideration before policy prescriptions or any other investment decisions.