Authors: Hishamuddin Abdul Wahab; Nur Laila Mohd. Arif
Addresses: Faculty of Science and Technology, Universiti Sains Islam Malaysia, Bandar Baru Nilai 71800, Malaysia ' Faculty of Science and Technology, Universiti Sains Islam Malaysia, Bandar Baru Nilai 71800, Malaysia
Abstract: Gold price has been subjected to volatility clustering since the abolishment of the gold standard in August 1971. While there are myriad studies focused on developed economies, studies on the pattern of volatility in gold especially under the context of small open economy of Malaysia are still lacking. Attempting to fill in the gap, this study provides insight into the trend of gold price volatility as well as to examine the time variant nature of gold volatility surrounding the US subprime crisis. This study also provides a new perspective on the transmission between bilateral exchange rate (MYR/USD) and gold price. This study covered recent daily data from August 2005 to July 2018 using different models of ARCH-GARCH including ARCH, GARCH, EGARCH and TGARCH. Accordingly, gold price volatility was persistent across all periods. Enhanced volatility was evident during the 2008 global financial crisis (GFC) owing to high speculative activities and clustered news over the period. In term of asymmetry response, there was inverted asymmetry effect where positive shock raised volatility in gold. Finally, bilateral exchange rate (MYR/USD) affected gold price volatility with positive relationship, implicating the high sensitivity of gold investment during the depreciation of local currency.
Keywords: gold volatility; GARCH; TGARCH; EGARCH; MGARCH-GCC; Malaysia.
International Journal of Society Systems Science, 2020 Vol.12 No.1, pp.15 - 35
Received: 24 Nov 2018
Accepted: 02 Aug 2019
Published online: 27 Apr 2020 *