Gold Price and Effect on Stock Exchange

Gold Price Volatility and Stock Market Returns in India
P K Mishra Faculty in Economics, Siksha O Anusandhan University, Orissa, India E-mail: [e-mail] J R Das Faculty in Management, Siksha O Anusandhan University, Orissa, India E-mail: [e-mail] S K Mishra Faculty in Economics, TITE, Orissa, India E-mail: [e-mail] Abstract The study of the capital market of a country in terms of a wide range of macroeconomic and financial variables has been the subject matter of many researches since last few decades. Recently one such variable, that is, gold price volatility has attracted the attention of many researchers, academicians and analysts. Thus, this paper is an attempt to analyse the causality relation that may run between domestic gold prices and stock market returns in India. The study by taking into consideration the domestic gold prices and stock market returns based on BSE 100 index, investigates the Granger causality in the Vector Error Correction Model for the period January 1991 to December 2009. The analysis provides the evidence of feedback causality between the variables. It infers that the Gold prices Granger-causes stock market returns and stock market returns also Granger-causes the gold prices in India during the sample period. Thus, both the variables contain some significant information for the prediction of one in terms of another.

Keywords: Gold Price, Stock Market Return, BSE 100 Index, India, Volatility, Causality JEL Classification Codes: C22, C32, E44

1. Introduction
The study of the capital market of a country in terms of a wide range of macro-economic and financial variables has been the subject matter of many researches since last few decades. Empirical studies reveal that once financial deregulation takes place, the stock markets of a country become more sensitive to both domestic and external factors. And, one such factor is the price of gold. From 1900 to 1971, with the global systems of gold

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