Country risk and the interaction between gold price and gold stock index return volatilities: evidence from the South African market
by Edson Vengesai; Lorraine Rupande; Hilary Tinotenda Muguto; Paul-Francois Muzindutsi
International Journal of Trade and Global Markets (IJTGM), Vol. 15, No. 1, 2022

Abstract: The returns of gold and gold mining companies are assumed to comove positively because investing in gold is considered tantamount to investing in gold-mining stocks. This study hypothesised that the conditional correlations of these returns' volatilities are dynamic and subject to country risk components. Therefore, an asymmetric dynamic conditional correlation generalised autoregressive conditional heteroskedasticity model was employed to test this hypothesis. The results show high positive correlation between the returns of the two series, suggesting that gold mining stocks behave like gold. However, the conditional correlation between the volatilities was found to be time-varying and subject to country risk components.

Online publication date: Wed, 16-Feb-2022

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