Volatility linkages among the returns of oil, gold, and stock market: Evidence from Thailand
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Published:
Aug 30, 2021
Keywords:
Oil Gold Stock Volatility spillover BEKK-GARCH Thailand
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Abstract
This paper examines the return and volatility linkages between oil, gold, and Thai stock markets by applying the multivariate Baba-Engle-Kraft-Kroner (BEKK)-GARCH model to daily data from January 1, 1996 to December 31, 2020. To better understand the impact of the global financial crisis, we divide the data into three sub-periods: the pre-crisis period (January 1, 1996 to December 31, 2006), the crisis period (January 1, 2007 to December 31, 2009), and the post-crisis period (January 1, 2010 to December 31, 2020). We find that the return spillovers vary across the whole and three sub-periods for oil, gold, and stock. Moreover, the volatility transmissions are found to be different during the whole and three sub-periods for oil, gold, and stock in Thailand. These findings provide useful information to investors, portfolio managers, and policymakers regarding portfolio diversification and risk management.
Article Details
How to Cite
Sinlapates, P., Romklang, N., & Chancharat, S. (2021). Volatility linkages among the returns of oil, gold, and stock market: Evidence from Thailand. Asia-Pacific Journal of Science and Technology, 26(04), APST–26. https://doi.org/10.14456/apst.2021.41
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Research Articles
References
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[36] Mohanty SK, Akhigbe A, Al-Khyal TA, Bugshan T. Oil and stock market activity when prices go up and down: the case of the oil and gas industry. Rev Quant Finance Account. 2013;41(2):253-72.
[37] Kocaarslan B, Soytas U. Dynamic correlations between oil prices and the stock prices of clean energy and technology firms: the role of reserve currency (US dollar). Energy Econ. 2019;84:104502.
[38] Nusair SA, Al-Khasawneh JA. Oil price shocks and stock market returns of the GCC countries: empirical evidence from quantile regression analysis. Econ Change Restruct. 2018;51(4):339-72.
[39] Bouri E. Return and volatility linkages between oil prices and the Lebanese stock market in crisis periods. Energy. 2015;89:365-71.
[40] Narayan PK. Can stale oil price news predict stock returns?. Energy Econ. 2019;83:430-44.
[41] Dutta A, Hasib Noor M. Oil and non-energy commodity markets: an empirical analysis of volatility spillovers and hedging effectiveness. Cogent Econ Finance. 2017;5(1):1324555.
[42] Kumar S, Pradhan AK, Tiwari AK, Kang SH. Correlations and volatility spillovers between oil, natural gas, and stock prices in India. Resour Policy. 2019;62:282-91.
[43] Ibrahim MH. Financial market risk and gold investment in an emerging market: the case of Malaysia. Int J Islam Middle East Finance Manag. 2012;5(1):25-34.
[44] Tursoy T, Faisal F. The impact of gold and crude oil prices on stock market in Turkey: empirical evidences from ARDL bounds test and combined cointegration. Resour Policy. 2018;55:49-54.
[45] Ansari MG, Sensarma R. US monetary policy, oil and gold prices: which has a greater impact on BRICS stock markets?. Econ Anal Policy. 2019;64:130-51.
[46] Kocaarslan B, Soytas U, Sari R, Ugurlu E. The changing role of financial stress, oil price, and gold price in financial contagion among US and BRIC markets. Int Rev Finance. 2019;19(3):541-74.
[47] Arfaoui M, Ben Rejeb A. Oil, gold, US dollar and stock market interdependencies: a global analytical insight. Eur J Manag Bus Econ. 2017;26(3):278-93.
[48] Husain S, Tiwari AK, Sohag K, Shahbaz M. Connectedness among crude oil prices, stock index and metal prices: an application of network approach in the USA. Resour Policy. 2019;62:57-65.
[49] Lin L, Kuang Y, Jiang Y, Su X. Assessing risk contagion among the Brent crude oil market, London gold market and stock markets: evidence based on a new wavelet decomposition approach. North Am J Econ Finance. 2019;50:101035.
[50] Raza N, Jawad Hussain Shahzad S, Tiwari AK, Shahbaz M. Asymmetric impact of gold, oil prices and their volatilities on stock prices of emerging markets. Resour Policy. 2016;49:290-301.
[51] Engle RF, Kroner KF. Multivariate simultaneous generalized ARCH. Econ Theory. 1995;11(1):122-50.
[52] Brooks C. Introductory econometrics for finance. 2nd ed. Cambridge: Cambridge University Press; 2008.
[2] Bedoui R, Braiek S, Guesmi K, Chevallier J. On the conditional dependence structure between oil, gold and USD exchange rates: nested copula based GJR-GARCH model. Energy Econ. 2019;80:876-89.
[3] Hamilton JD. Oil and the macroeconomy since world war II. J Political Econ. 1983;91(2):228-48.
[4] Amano RA, van Norden S. Oil prices and the rise and fall of the US real exchange rate. J Int Money Finance. 1998;17(2):299-316.
[5] Wu CC, Chung H, Chang YH. The economic value of co-movement between oil price and exchange rate using copula-based GARCH models. Energy Econ. 2012;34(1):270-82.
[6] Gupta P, Goyal A. Impact of oil price fluctuations on Indian economy. OPEC Energy Rev. 2015; 39(2):141-61.
[7] Narayan PK, Narayan S. Modelling the impact of oil prices on Vietnam’s stock prices. Appl Energy. 2010;87(1):356-61.
[8] Singhal S, Ghosh S. Returns and volatility linkages between international crude oil price, metal and other stock indices in India: evidence from VAR-DCC-GARCH models. Resour Policy. 2016;50:276-88.
[9] Al-hajj E, Al-Mulali U, Solarin SA. Oil price shocks and stock returns nexus for Malaysia: fresh evidence from nonlinear ARDL test. Energy Rep. 2018;4:624-37.
[10] Akbar M, Iqbal F, Noor F. Bayesian analysis of dynamic linkages among gold price, stock prices, exchange rate and interest rate in Pakistan. Resour Policy. 2019;62:154-64.
[11] Ghosh D, Levin Eric J, Macmillan P, Wright Robert E. Gold as an inflation hedge?. Stud Econ Finance. 2004;22(1):1-25.
[12] Akkoc U, Civcir I. Dynamic linkages between strategic commodities and stock market in Turkey: evidence from SVAR-DCC-GARCH model. Resour Policy. 2019;62:231-9.
[13] Jain A, Biswal PC. Dynamic linkages among oil price, gold price, exchange rate, and stock market in India. Resour Policy. 2016;49:179-85.
[14] Singhal S, Choudhary S, Biswal PC. Return and volatility linkages among international crude oil price, gold price, exchange rate and stock markets: evidence from Mexico. Resour Policy. 2019;60:255-61.
[15] Central Intelligence Agency. The world factbook 2019-2020. New York: Skyhorse; 2019.
[16] Statista. Consumer gold demand in major consuming countries in 2015. Hamburg: Statista; 2016.
[17] Polkuamdee N. Will gold keep shining?: Business. Bangkok Post. 2019 Sep 30.
[18] Ghosh A. What drives gold demand in central bank's foreign exchange reserve portfolio?. Finance Res Lett. 2016;17:146-50.
[19] Gopalakrishnan B, Mohapatra S. Turning over a golden leaf? global liquidity and emerging market central banks’ demand for gold after the financial crisis. J Int Financial Mark Inst Money. 2018;57:94-109.
[20] Hossain AA, Arwatchanakarn P. Does money have a role in monetary policy for price stability under inflation targeting in Thailand?. J Asian Econ. 2017;53:37-55.
[21] Mahathanaseth I, Tauer LW. Monetary policy transmission through the bank lending channel in Thailand. J Asian Econ. 2019;60:14-32.
[22] Mukherjee I, Goswami B. The volatility of returns from commodity futures: evidence from India. Financial Innov. 2017;3(1):15.
[23] Salisu AA. Modelling oil price volatility before, during and after the global financial crisis. OPEC Energy Rev. 2014;38(4):469-95.
[24] Bollerslev T, Engle RF, Wooldridge JM. A capital asset pricing model with time-varying covariances. J Political Econ. 1988;96(1):116-31.
[25] Brooks C, Burke SP, Persand G. Benchmarks and the accuracy of GARCH model estimation. Int J Forecast. 2001;17(1):45-56.
[26] Solnik B. Using financial prices to test exchange rate models: a note. J Finance. 1987;42(1):141-9.
[27] Ma CK, Kao GW. On exchange rate changes and stock price reactions. J Bus Finance Account. 1990; 17(3):441-9.
[28] Luehrman TA. Exchange rate changes and the distribution of industry value. J Int Bus Stud. 1991;22(4): 619-49.
[29] Adler M, Dumas B. Exposure to currency risk: definition and measurement. Financ Manage. 1984;13(2): 41-50.
[30] Tabak BM. The dynamic relationship between stock prices and exchange rates: evidence for Brazil. Brazil: Research Department, Central Bank of Brazil; 2006.
[31] Sadorsky P. Oil price shocks and stock market activity. Energy Econ. 1999;21(5):449-69.
[32] Oluseyi AS. An empirical investigation of the relationship between stock market prices volatility and macroeconomic variables’ volatility in Nigeria. EJAE. 2015;2(11):1-12.
[33] Pradhan RP, Arvin MB, Ghoshray A. The dynamics of economic growth, oil prices, stock market depth, and other macroeconomic variables: evidence from the G-20 countries. Int Rev Financ Anal. 2015;39: 84-95.
[34] Mollick AV, Sakaki H. Exchange rates, oil prices and world stock returns. Resour Policy. 2019;61:585-602.
[35] Kilian L, Park C. The impact of oil price shocks on the U.S. stock market. Int Econ Rev. 2009;50(4): 1267-87.
[36] Mohanty SK, Akhigbe A, Al-Khyal TA, Bugshan T. Oil and stock market activity when prices go up and down: the case of the oil and gas industry. Rev Quant Finance Account. 2013;41(2):253-72.
[37] Kocaarslan B, Soytas U. Dynamic correlations between oil prices and the stock prices of clean energy and technology firms: the role of reserve currency (US dollar). Energy Econ. 2019;84:104502.
[38] Nusair SA, Al-Khasawneh JA. Oil price shocks and stock market returns of the GCC countries: empirical evidence from quantile regression analysis. Econ Change Restruct. 2018;51(4):339-72.
[39] Bouri E. Return and volatility linkages between oil prices and the Lebanese stock market in crisis periods. Energy. 2015;89:365-71.
[40] Narayan PK. Can stale oil price news predict stock returns?. Energy Econ. 2019;83:430-44.
[41] Dutta A, Hasib Noor M. Oil and non-energy commodity markets: an empirical analysis of volatility spillovers and hedging effectiveness. Cogent Econ Finance. 2017;5(1):1324555.
[42] Kumar S, Pradhan AK, Tiwari AK, Kang SH. Correlations and volatility spillovers between oil, natural gas, and stock prices in India. Resour Policy. 2019;62:282-91.
[43] Ibrahim MH. Financial market risk and gold investment in an emerging market: the case of Malaysia. Int J Islam Middle East Finance Manag. 2012;5(1):25-34.
[44] Tursoy T, Faisal F. The impact of gold and crude oil prices on stock market in Turkey: empirical evidences from ARDL bounds test and combined cointegration. Resour Policy. 2018;55:49-54.
[45] Ansari MG, Sensarma R. US monetary policy, oil and gold prices: which has a greater impact on BRICS stock markets?. Econ Anal Policy. 2019;64:130-51.
[46] Kocaarslan B, Soytas U, Sari R, Ugurlu E. The changing role of financial stress, oil price, and gold price in financial contagion among US and BRIC markets. Int Rev Finance. 2019;19(3):541-74.
[47] Arfaoui M, Ben Rejeb A. Oil, gold, US dollar and stock market interdependencies: a global analytical insight. Eur J Manag Bus Econ. 2017;26(3):278-93.
[48] Husain S, Tiwari AK, Sohag K, Shahbaz M. Connectedness among crude oil prices, stock index and metal prices: an application of network approach in the USA. Resour Policy. 2019;62:57-65.
[49] Lin L, Kuang Y, Jiang Y, Su X. Assessing risk contagion among the Brent crude oil market, London gold market and stock markets: evidence based on a new wavelet decomposition approach. North Am J Econ Finance. 2019;50:101035.
[50] Raza N, Jawad Hussain Shahzad S, Tiwari AK, Shahbaz M. Asymmetric impact of gold, oil prices and their volatilities on stock prices of emerging markets. Resour Policy. 2016;49:290-301.
[51] Engle RF, Kroner KF. Multivariate simultaneous generalized ARCH. Econ Theory. 1995;11(1):122-50.
[52] Brooks C. Introductory econometrics for finance. 2nd ed. Cambridge: Cambridge University Press; 2008.