Reassessment of linkage between stock prices and gold prices: A causal investigation

Abstract

This research aims to understand the connection between the capital market and the gold market. To understand the link between gold prices and equity prices and vice versa, the vector autoregression model (VAR) is estimated, and the Granger causality test is performed in the framework of VAR. Unit root tests such as the Augment Dicky Fuller test and Phillips-Pierrion test are conducted to check for the stationarity of the data. Johansen's cointegration test is conducted to check for cointegration between two time series. We utilized weekly data from June 7, 2009, to December 25, 2021. Stock indices of three countries, namely, Saudi Arabia, the United Arab Emirates, and Turkey, are used in the paper. Gold prices are in the currency of selected stock markets. According to the findings, unidirectional causality exists only in the case of Turkey, where it runs from stock returns to gold returns. Numerous articles have attempted to clarify the connection between the gold market and stock exchanges. This paper utilizes the most recent data and tries to understand the linkages among three countries that are major buyers of gold.