The Impact of Gold Price and Us Dollar Index: The Volatile Case of Shanghai Stock Exchange and Bombay Stock Exchange During the Crisis of Covid-19

Joseph John Allwyn Kumar, Robiyanto Robiyanto

Abstract


This literature aims to analyze the impact of the Dollar Index and Gold Price returns and volatility on stock market volatility of India and China, viz., Shanghai Stock Exchange and Bombay Stock Exchange Sensex, during the period of Covid-19. This study employs daily time-series data from January up to August for 2019, 2020, and a merged data of 2019-2020, i.e., Pre-Pandemic, Mid-Pandemic and Pre through Mid-Pandemic periods, respectively; to avoid possible abnormalities and heteroscedasticity, the GARCH (1,1) model is utilized to scrutinize the data depending on which distribution is more acceptable, GED or Gaussian, which is decided based on the Unit-Root and normality test results. The findings of this study prove that Gold Price mostly does have a significant effect on both markets, especially during times of financial crisis like the Covid-19 epidemic. Whereas Dollar Index has a significant impact on emerging markets such as India and China though significant effects persist in some cases, it is not valid in most cases.


DOI: 10.26905/jkdp.v25i3.5142



Keywords


BSESN; COVID-19; DXY; GARCH; Gold; Spillover; SSE; Volatility

Full Text:

PDF

References


Al-Awadhi, A. M., Al-Saifi, K., Al-Awadhi, A., & Alhamadi, S. (2020). Death and Contagious Infectious Diseases: Impact of the COVID-19 Virus on Stock Market Return. Journal of Behavioral and Experimental Finance, 27, 2–5. https://doi.org/10.1026/j.jbef.2020.100326

Arfaoui, M., & Ben Rejeb, A. (2017). Oil, gold, US dollar and stock market interdependencies: a global analytical insight. European Journal of Management and Business Economics, 26(3), 278–293. https://doi.org/10.1108/EJMBE-10-2017-016

Baker, S. R., Bloom, N., Davis, S. J., & Terry, S. J. (2020). COVID-Induced Economic Uncertainty. National Bureau of Economic Research, (26983), 1–10. https://doi.org/10.3386/w26983

Baur, D. G., & Lucey, B. M. (2010). Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold. The Financial Review, 45(2), 217–229. https://doi.org/10.1111/j.1540-6288.2010.00244.x

Baur, D. G., & McDermott, T. K. (2010). Is Gold a Safe Haven? International Evidence. Journal of Banking and Finance, 34(8), 1886–1898. https://doi.org/10.1016/j.jbankfin.2009.12.008

Ben-Rephael, A. (2017). Flight-to-liquidity, market uncertainty, and the actions of mutual fund investors. Journal of Financial Intermediation, 31, 30–44. https://doi.org/10.1016/j.jfi.2017.05.002

Bilal, A. R., Abu Talib, N. B., Haq, I. U., Khan, M. N. A. A., & Naveed, M. (2013). How Gold Prices Correspond to Stock Index: A Comparative Analysis of Karachi Stock Exchange and Bombay Stock Exchange. World Applied Sciences Journal, 21(4), 485–491. https://doi.org/10.5829/idosi.wasj.2013.21.4.2870

Boscaljon, B., & Clark, J. (2013). Do Large Shocks in VIX Signal a Flight-to-Safety in the Gold Market? Journal of Applied Finance, 23(2), 120–131. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=91979347&site=ehost-live

Cheema, M. A., & Szulczuk, K. (2020). COVID-19 Pandemic and Its Influence on Safe Havens: An Examination of Gold, T-Bills, T-Bonds, U.S. Dollar, and Stablecoin. SSRN Electronic Journal, 10, 2–12. https://doi.org/10.2139/ssrn.3590015

Cho, J. W., Choi, J. H., Kim, T., & Kim, W. (2016). Flight-to-quality and correlation between currency and stock returns. Journal of Banking and Finance, 62, 191–212. https://doi.org/10.1016/j.jbankfin.2014.09.003

Cohen, G., & Qadan, M. (2010). Is Gold Still a Shelter to Fear? American Journal of Social and Management Sciences, 1(1), 39–43. https://doi.org/10.5251/ajsms.2010.1.1.39.43

Corbet, S., Hou, Y. (Greg), Hu, Y., Oxley, L., & Xu, D. (2021). Pandemic-related financial market volatility spillovers: Evidence from the Chinese COVID-19 epicentre. International Review of Economics and Finance, 71(September 2020), 55–81. https://doi.org/10.1016/j.iref.2020.06.022

Corbet, S., Larkin, C., & Lucey, B. (2020). The Contagion Effects of the COVID-19 Pandemic: Evidence from Gold and Cryptocurrencies. Finance Research Letters, 35, 101–554. https://doi.org/10.1016/j.frl.2020.101554

Dyhrberg, A. H. (2016). Bitcoin, Gold and the Dollar - A GARCH Volatility Analysis. Finance Research Letters, 1(16), 85–92. https://doi.org/10.1016/j.frl.2015.10.008

Fulop, C. (2007). History and development. Franchising Hospitality Services, 22–43. https://doi.org/10.6023/cjoc201709009

Gao, R., & Zhang, B. (2016). How does economic policy uncertainty drive gold–stock correlations? Evidence from the UK. Applied Economics, 48(33), 3081–3087. https://doi.org/10.1080/00036846.2015.1133903

Ghosh, S. (2014). Volatility spillover in the foreign exchange market: The Indian experience. Macroeconomics and Finance in Emerging Market Economies, 7(1), 175–194. https://doi.org/10.1080/17520843.2013.856334

Gormsen, N. J., & Koijen, R. S. J. (2020). Coronavirus: Impact on Stock Prices and Growth Expectations. SSRN Electronic Journal, 22, 1–29. https://doi.org/10.2139/ssrn.3555917

Handayani, H., Muharam, H., Mawardi, W., & Robiyanto, R. (2018). Determinants of the Stock Price Volatility in the Indonesian Manufacturing Sector. International Research Journal of Business Studies, 11(3), 179–193. https://doi.org/10.21632/irjbs.11.3.179-193

He, X., Takiguchi, T., Nakajima, T., & Hamori, S. (2020). Spillover effects between energies, gold, and stock: the United States versus China. Energy and Environment, 31(8), 1416–1447. https://doi.org/10.1177/0958305X20907081

Hoang, T. H. Van, Wong, W. K., & Zhu, Z. (2015). Is Gold Different for Risk-Averse and Risk-Seeking Investors? An Empirical Analysis of the Shanghai Gold Exchange. Economic Modelling, 50, 200–211. https://doi.org/10.1016/j.econmod.2015.06.021

Hosen, V. S. (2013). The Influence of S&P 500 Index , 30-Year US Treasury Bond , Commodity Research Bureau Index , and USD Index towards the Volatility of Jakarta Composite Index. President University, 1(5), 5–82. Retrieved from http://repository.president.ac.id/xmlui/handle/123456789/2658

Jain, A., & Biswal, P. C. (2016). Dynamic linkages among oil price, gold price, exchange rate, and stock market in India. Resources Policy, 49, 179–185. https://doi.org/10.1016/j.resourpol.2016.06.001

Karunanayake, I., Valadkhani, A., & O’Brien, M. J. (2009). Financial crises and stock market volatility transmission : evidence from Australia , Singapore , the UK , and the US. Financial Crises and Stock Market Volatility Transmission: Evidence from Australia, Singapore, the UK, and the US, 1–18. Retrieved from http://ro.uow.edu.au/commpapers/2453

Katare, A., Suryavanshi, A. K. ., & Rakshit, P. P. (2020). A Study to Comprehend Nifty50 Index of India during Covid 19 Pandemic Epoch. UGC CARE Journal, 40(68), 335–348. Retrieved from https://archives.tpnsindia.org/index.php/sipn/article/view/8785/8412

Kumar, R., & Gupta, M. (2019). Relationship among Gold Prices and Stock Indices-An Empirical Analysis with Reference to Bombay Stock Exchange S&P Metal indices. UGC Care Listed Journal, 12(1), 22–27. Retrieved from http://pimtjr.in/wp-content/uploads/2019/11/12.1-Combined.pdf

Liu, K. (2020). The Effects of COVID-19 on Chinese Stock Markets: An EGARCH Approach. University of Sydney, Australia, 10, 1–21. Retrieved from http://dx.doi.org/10.2139/ssrn.3612461

Lu, X., Wang, J., & Lai, K. K. (2014). Volatility spillover effects between gold and stocks based on VAR-DCC-BVGARCH model. Proceedings - 2014 7th International Joint Conference on Computational Sciences and Optimization, CSO 2014, 284–287. https://doi.org/10.1109/CSO.2014.60

Manda, K. (2010). Stock Market Volatility during the 2008 Financial Crisis. The Leonard N. Stern School of Business Glucksman Institute for Research in Securities Markets, 1(87), 1–32. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.454.8418&rep=rep1&type=pdf

Marotta, D. J. (2015). What is the US Dollar Index? Retrieved from Forbes website: https://www.forbes.com/sites/davidmarotta/2015/01/17/what-is-the-us-dollar-index/#78553f84701e

Mikhaylov, A. Y. (2018). Volatility spillover effect between stock and exchange rate in oil exporting countries. International Journal of Energy Economics and Policy, 8(3), 321–326.

Ming, L., Zhang, X., Liu, Q., & Yang, S. (2020). A Revisit to the Hedge and Safe Haven Properties of Gold: New Evidence from China. Journal of Futures Markets Wiley, 10, 1–15. https://doi.org/10.1002/fut.22124

Misra, P. (2018). An Investigation of the Macroeconomic Factors Affecting the Indian Stock Market. Australasian Accounting, Business and Finance Journal, 12(2), 71–86. https://doi.org/10.14453/aabfj.v12i2.5

Naresh, G., Vasudevan, G., Mahalakshmi, S., & Thiyagarajan, S. (2018). Spillover effect of US dollar on the stock indices of BRICS. Research in International Business and Finance, 44(July 2017), 359–368. https://doi.org/10.1016/j.ribaf.2017.07.105

Nelson, D. B. (1991). Conditional Heteroskedasticity in Asset Returns: A New Approach. Econometrica, 59(2), 347. https://doi.org/10.2307/2938260

Nirodha, I, J., Neda, T., Bin, L., & Jen-Je, S. (2015). Forecasting the Volatility of the Japanese Stock Market Using After-Hour Information in Other Markets. Australian Accounting, Business and Finance Journal, 12(2), 2–10. Retrieved from http://hdl.handle.net/10072/390387

Olweny, T., & Omondi, K. (2011). The Effect Of Macro-Economic Factors On Stock Return Volatility In The Nairobi Stock Exchange, Kenya. Economics and Finance Review. Economics, 1(10)(June 2014), 34–48. Retrieved from https://www.researchgate.net/publication/228451409_THE_EFFECT_OF_MACRO-ECONOMIC_FACTORS_ON_STOCK_RETURN_VOLATILITY_IN_THE_NAIROBI_STOCK_EXCHANGE_KENYA

Onali, E. (2020). COVID-19 and Stock Market Volatility. SSRN Electronic Journal, 12, 1–24. https://doi.org/10.2139/ssrn.3571453

Polisetty, A., Kumar, D. D. P., & Susan Kurian, M. J. (2016). Influence of Exchange Rate on BSE Sensex & NSE Nifty. IOSR Journal of Business and Management, 18(9), 10–15. https://doi.org/10.9790/487x-1809021015

Putra, A. R., & Robiyanto, R. (2019). The Effect of Commodity Price Changes and USD/IDR Exchange Rate on Indonesian Mining Companies’ Stock Return. Jurnal Keuangan Dan Perbankan, 23(1), 97–108. https://doi.org/10.26905/jkdp.v23i1.2084

Rashid Sabri, N. (2004). Stock Return Volatility and Market Crisis In Emerging Economies. Review of Accounting and Finance, 3(3), 59–83. https://doi.org/10.1108/eb043408

Reboredo, J. C. (2012). Modelling oil price and exchange rate co-movements. Journal of Policy Modeling, 34(3), 419–440. https://doi.org/10.1016/j.jpolmod.2011.10.005

S&P BSE SENSEX. (2020). Retrieved from S&P BSE Index website: https://us.spindices.com/indices/equity/sp-bse-sensex

Samanta, S. K., & Zadeh, A. H. M. (2012). Co-movements of Oil, Gold, the U.S. Dollar, and Stocks. Modern Economy, 03(01), 111–117. https://doi.org/10.4236/me.2012.31015

Sansa, A. N. (2020). The Impact of the COVID - 19 on the Financial Markets: Evidence from China and USA. Electronic Research Journal of Social Sciences and Humanities, 2(2), 29–39. Retrieved from http://dx.doi.org/10.2139//ssrn.3567901

Su, J. Bin. (2016). How the quantitative easing affect the spillover effects between the metal market and united states dollar index? Journal of Reviews on Global Economics, 5(1), 254–272. https://doi.org/10.6000/1929-7092.2016.05.22

Su, E.-D., & Fen, Y.-G. (2011). The Affect of the U.S. Dollar Index, U.S. Stocks and the Currency Exchange on the Taiwan Stock Market during the Financial Tsunami. Journal of Statistics and Management Systems, 14(4), 789–813. https://doi.org/10.1080/09720510.2011.10701586

Sun, X., Lu, X., Yue, G., & Li, J. (2016). Cross-Correlations Between the US Monetary Policy, US Dollar Index and Crude Oil Market. Physica A, 467, 326–344. https://doi.org/10.1016/j.physa.2016.10.029

Tian, G. G., & Ma, S. (2010). The Relationship Between Stock Returns and the Foreign Exchange Rate: The ARDL Approach. Journal of the Asia Pacific Economy, 15(4), 490–508. https://doi.org/10.1080/13547860.2010.516171

WHO. (2020). Rolling Update on Coronavirus Disease (COVID-19). Retrieved from World Health Organization website: https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen

Wu, C. C., & Wu, C. C. (2017). The Asymmetry in Carry Trade and the U.S. Dollar. Quarterly Review of Economics and Finance, 65, 304–313. https://doi.org/10.1016/j.qref.2016.12.004

Xia, Y., & Kamel, M. S. (2008). A generalized least absolute deviation method for parameter estimation of autoregressive signals. IEEE Transactions on Neural Networks, 19(1), 107–118. https://doi.org/10.1109/TNN.2007.902962

Yaya, O. O. S., Olubusoye, O. E., & Ojo, O. O. (2014). Estimates and forecasts of GARCH model under misspecified probability distributions: A monte carlo simulation approach. Journal of Modern Applied Statistical Methods, 13(2), 479–492. https://doi.org/10.22237/jmasm/1414816020

Yeung, K. (2020). Coronavirus: China could Become New Investment Safe Haven as Stocks, Yuan Rally While Global Markets Suffer. Retrieved from South China Morning Post website: https://www.scmp.com/economy/china-economy/article/3065159/coronavirus-china-could-become-new-investment-safe-haven

Zakaria, Z., & Shamsuddin, S. (2012). Empirical Evidence on the Relationship Between Stock Market Volatility and Macroeconomics Volatility in Malaysia. Journal of Business Studies Quarterly, 4(2), 61–71. Retrieved from https://www.researchgate.net/profile/Zukarnain_Zakaria/publication/310613721_Empirical_evidence_on_the_relationship_between_stock_market_volatility_and_macroeconomic_volatility_in_Malaysia/links/5833ee2c08aef19cb81cc38b/Empirical-evidence-on-the-relations




DOI: https://doi.org/10.26905/jkdp.v25i3.5142

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0