Abstract
This paper probes the relationship between geopolitical risks (GPR), WTI oil, and gold prices utilizing the time-varying causality and quantile regression approaches. The sample period spans from January 1986 to January 2022, comprising 433 monthly observations and representing the longest common period of data availability. The results show that there is no causality between the pairs of GPR–WTI, and GPR–gold prices for the full sample period, while the causality between gold and WTI is unidirectional, running from gold to WTI. Using the rolling causality test, however, the findings show that the dynamic causal relations strengthen over time. The Granger causality from the gold prices to GPR and WTI is stronger than the other way around, suggesting that the gold market dominates the other two variables in terms of strength of the lead-lag structure of causality. Besides, the findings reveal the strongest causation effects between GPR and WTI spot prices. Before 2009, the causal relationship between WTI and GPR is mostly unidirectional while also a bidirectional linkage emerges, coinciding with the crisis periods including the Dot-Com and 2007 US Subprime crises. During the causal periods, these variables respond negatively to changes in others. For the COVID19 period, the direction of causality considerably changes in favor of WTI for the GPR–WTI pair whereas it is unchanged for the WTI–gold pair. The results indicate that WTI has positive and negative predictive powers for GPR and gold while it receives negative and positive causation effects from GPR and gold during the pandemic, respectively. The results, in overall, may offer important insights for investors and regulatory authorities in building portfolio and risk management strategies as well as pricing and trading activities and constructing monetary policies over various market conditions.
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
