Title: Country risk and the interaction between gold price and gold stock index return volatilities: evidence from the South African market

Authors: Edson Vengesai; Lorraine Rupande; Hilary Tinotenda Muguto; Paul-Francois Muzindutsi

Addresses: School of Accounting, Economics and Finance, College of Law and Management Studies, University of KwaZulu-Natal, 4000, South Africa ' School of Accounting, Economics and Finance, College of Law and Management Studies, University of KwaZulu-Natal, 4000, South Africa ' School of Accounting, Economics and Finance, College of Law and Management Studies, University of KwaZulu-Natal, 4000, South Africa ' School of Accounting, Economics and Finance, College of Law and Management Studies, University of KwaZulu-Natal, 4000, South Africa

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.

Keywords: gold mining stocks; gold price; ADCC-GARCH model; country risk rating; conditional correlation; volatility; South Africa.

DOI: 10.1504/IJTGM.2022.120890

International Journal of Trade and Global Markets, 2022 Vol.15 No.1, pp.32 - 41

Received: 24 Oct 2019
Accepted: 07 May 2020

Published online: 16 Feb 2022 *

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