The relationship between volatilities on the gold market and US Stock market in the presence of geopolitical risks

Abstract EN

The stock market as well as the gold market are the most important markets in all developed countries.

Due to the urgent need of policy makers, investors and speculators, especially when tensions between countries arise, studying these markets is important.

The relationship between gold and the stock markets, in the presence of global tension and conflicts, is re-explored by introducing the uncertainty that induces shocks, such as the recent index, which was calculated by Caldara and Iacoviello in 2016, referred to as geopolitical risk index.

The gold price, S&P500 index and geopolitical risk index are used, for period starting from 1960 to 2017 in order to construct a VAR-BEKK-GARCH model, which computes the mean returns, as well as the variance-covariance,especially if the time-varying stock–gold covariance, their returns and their variances are influenced by geopolitical risk.

The present model showed a negative relationship between the volatilities on gold prices, as well a significant effect on the spillover between the stock market and the gold market.

These findings are important for investors to manage their portfolio effectively.