Haven on Earth? Dynamic Connections between Gold and Stock Markets in Turbulent Times

40 Pages Posted: 13 Feb 2017

See all articles by Juha-Pekka Junttila

Juha-Pekka Junttila

University of Oulu - Department of Economics, Accounting and Finance; University of Jyväskylä - Jyväskylä International Macro & Finance Research Group (JyIMaF)

Juhani Raatikainen

University of Jyväskylä - School of Business and Economics

Date Written: February 13, 2017

Abstract

We find that exogenous structural shocks caused by terrorist attacks, wars, political turmoil and gold market specific events have a strong role to play in the analysis of dynamic relationships between gold and stock market returns. Our main finding is that the interaction between the gold market and stock market is much tighter than previously observed. Especially some of the gold market specific shocks have long lasting impacts also on the financial markets. Also some events, which may have been miss-interpreted as minor shocks previously, have in fact had significant impacts on both stock and gold markets. Furthermore, the dynamic correlations between all the analyzed financial sectors increase prior to the crisis periods, but the correlation between the return on the VIX index and the change in the TED spread, which measures the relationship between price risk and credit risk, is the most promising early warning indicator of financial crisis.

Keywords: Gold market, Stock market, Risk, Dynamic correlations, Shocks

JEL Classification: C32, C58, G01, G12, G14

Suggested Citation

Junttila, Juha-Pekka and Raatikainen, Juhani, Haven on Earth? Dynamic Connections between Gold and Stock Markets in Turbulent Times (February 13, 2017). Available at SSRN: https://ssrn.com/abstract=2916073 or http://dx.doi.org/10.2139/ssrn.2916073

Juha-Pekka Junttila (Contact Author)

University of Oulu - Department of Economics, Accounting and Finance ( email )

P.O. Box 4600
Oulu, 90014
Finland

University of Jyväskylä - Jyväskylä International Macro & Finance Research Group (JyIMaF) ( email )

PO Box 35
Jyväskylä
Finland

Juhani Raatikainen

University of Jyväskylä - School of Business and Economics ( email )

University of Jyväskylä
PO Box 35
FIN 40351, FIN-40014
Finland

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