Oil Price, Gold Price, and the Equity Market Nexus in South Africa: Evidence from Bootstrap ARDL

Abstract

This paper aims to give novel evidence by examining the impact of oil price, gold price on the equity market of South Africa (JSE), by employing the newly established bootstrap (B-ARDL) approach as suggested by (McNown et al., 2018). The ARDL, Dynamic OLS (DOLS), Canonical Cointegrating Regression (CCR), and Fully Modified OLS (FMOLS) testing approaches are used in analyzing a long-term linkage among the selected parameters. Furthermore, the Granger causality (GC) testing approach is adopted to test the causality amidst the selected parameters. The outcomes of ARDL, FMOLS, DOLS, and CCR tests discovered that gold price has an inverse influence on the equity market in South Africa. In contrast, oil prices affect positively the South African equity market. The Granger causality revealed a uni-direction from gold price, oil price to equity market ( ln ). The paper suggests that gold is a secure investment asset that should be used to protect against risks and the positive interaction between oil prices and equity market fluctuations implies that oil should not be used as a hedge towards equity market uncertainty in South Africa.