The Asymmetric Long-Run Relationship between Crude Oil and Gold Futures

Abstract

This study employs the momentum threshold error-correction model with generalized autoregressive conditional heteroskedasticity to investigate asymmetric cointegration and causal relationships between West Texas Intermediate Crude Oil and gold prices in the futures market. The paper examines data from May 1, 1994 to November 20, 2008. The empirical results show that an asymmetric long-run adjustment exists between gold and oil. Furthermore, the causality relationship shows that West Texas Intermediate Crude Oil plays a dominant role. The findings should prove valuable to individual investors and financial institutions who can use the findings here to gold prices based on oil prices.

Keywords: Momentum Threshold Error Correction Model, Asymmetric Causality Relationship

JEL Classification: C32, G15, Q39, Q49