Rolling, recursive evolving and asymmetric causality between crude oil and gold prices: Evidence from an emerging market

Abstract

This study investigates the causal relationships among spot and futures prices of crude oil and gold for the Indian market by applying rolling, recursive evolving and asymmetric causality tests, for the period spanning from January 2006 to February 2019. Using the rolling and recursive evolving Granger causality test, this study investigates the time-varying nature of causality between the prices of crude oil and gold. The results indicate that there exist causal linkages both from crude oil prices to gold prices, and vice-versa, during different sub-periods between January 2006 and February 2019, for the spot prices as well as the futures prices. The asymmetric causality tests reveal that negative shocks and positive shocks in oil prices Granger causes gold prices, and vice-versa, considering both spot and futures prices. In addition, the asymmetric causality tests show that positive shocks in crude oil prices and gold prices have a more significant impact on gold prices and crude oil prices respectively as compared to a negative shock in crude oil prices and gold price. This study's findings may be of particular relevance to policymakers and risk management professionals who need to comprehend the behavior of crude oil and gold commodity markets and the relationships that exist between them.