Impact of COVID-19 First Official Vaccine Approval on Precious Metals: A Behavioral Finance Approach

Year 2022, Volume: 6 Issue: 1, 1799 - 1807, 31.01.2022

Cagri Hamurcu

https://doi.org/10.29023/alanyaakademik.1030370

Cited By: 1

Abstract

This research aims to reveal the effect of first official COVID-19 vaccine approval on precious metal prices in terms of return and volatility. Within the context of precious metal, gold, silver, platinum, and palladium are selected as dependent and US dollar index as independent variables. In order to measure the difference in the returns and volatilities before and after the first official approval of the COVID-19 vaccine, a dummy variable is defined. Analysis studies have been carried out with EGARCH models. According to the results, it is determined that the first official COVID-19 vaccine approval had negatively affected the level of volatility for gold and silver prices. The approval does not affect the volatility of platinum and palladium. Besides, a negative relationship is found between both all precious metals and the US dollar index in terms of returns. It is assumed that the results could be interpreted as investors acted by the risk aversion bias before the first official approval of the COVID-19 vaccine, and the approval created an effect of reducing uncertainty in the financial markets.

Keywords

: behavioral finance, gold, silver, platinum, palladium, EGARCH, COVID-19, vaccine.

References

• BATTEN, J. A., CINER, C., & LUCEY, B. M. (2010). The macroeconomic determinants of volatility in precious metals markets. Resources Policy, 35(2), 65–71. https://doi.org/10.1016/j.resourpol.2009.12.002
• BAUR, D. G. (2012). Asymmetric Volatility in the Gold Market. The Journal of Alternative Investments, 120223000721008. https://doi.org/10.3905/jai.2012.2012.1.016
• BRANDT, M. W., & JONES, C. S. (2006). Volatility forecasting with range-based EGARCH models. Journal of Business and Economic Statistics, 24(4), 470–486. https://doi.org/10.1198/073500106000000206
• CALVIMONTES, J., MASSARO, L., ARAUJO, C. H. X., MORAES, R. R., MELLO, J., FERREIRA, L. C., & DE THEIJE, M. (2020). Small-scale gold mining and the COVID-19 pandemic: Conflict and cooperation in the Brazilian Amazon. Extractive Industries and Society, May, 1–4. https://doi.org/10.1016/j.exis.2020.08.013
• CAPIE, F., MILLS, T. C., & WOOD, G. (2005). Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions and Money, 15(4), 343–352. https://doi.org/10.1016/j.intfin.2004.07.002
• ESCRIBANO, A., & GRANGER, C. W. J. (1998). Investigating the relationship between gold and silver prices. Journal of Forecasting, 17(2), 81–107. https://doi.org/10.1002/(SICI)1099-131X(199803)17:2<81::AID-FOR680>3.0.CO;2-B
• GHARIB, C., MEFTEH-WALI, S., & JABEUR, S. B. (2020). The bubble contagion effect of COVID-19 outbreak: Evidence from crude oil and gold markets. Finance Research Letters, July 2020, 101703. https://doi.org/10.1016/j.frl.2020.101703
• HE, Q., GUO, Y., & YU, J. (2020). Nonlinear dynamics of gold and the dollar. North American Journal of Economics and Finance, 52(January), 101160. https://doi.org/10.1016/j.najef.2020.101160
• ICHEV, R., & MARINČ, M. (2018). Stock prices and geographic proximity of information: Evidence from the Ebola outbreak. International Review of Financial Analysis, 56, 153–166. https://doi.org/10.1016/j.irfa.2017.12.004
• JOY, M. (2011). Gold and the US dollar: Hedge or haven? Finance Research Letters, 8(3), 120–131. https://doi.org/10.1016/j.frl.2011.01.001
• LUCEY, B. M., & LI, S. (2015). What precious metals act as safe havens, and when? Some US evidence. Applied Economics Letters, 22(1), 35–45. https://doi.org/10.1080/13504851.2014.920471
• MENSI, W., SENSOY, A., VO, X. V., & KANG, S. H. (2020). Impact of COVID-19 outbreak on asymmetric multifractality of gold and oil prices. Resources Policy, 69(May), 101829. https://doi.org/10.1016/j.resourpol.2020.101829
• NELSON, D. B. (1991). Conditional Heteroskedasticity in Asset Returns : A New Approach. Econometrica, 59(2), 347–370.
• OTERO, L. A., & REBOREDO, J. C. (2018). The performance of precious-metal mutual funds: Does uncertainty matter? International Review of Financial Analysis, 57, 13–22. https://doi.org/10.1016/j.irfa.2018.02.003
• QIAN, Y., RALESCU, D. A., & ZHANG, B. (2019). The analysis of factors affecting global gold price. Resources Policy, 64(June), 101478. https://doi.org/10.1016/j.resourpol.2019.101478
• QIN, M., SU, C. W., QI, X. Z., & HAO, L. N. (2020). Should gold be stored in chaotic eras? Economic Research-Ekonomska Istrazivanja , 33(1), 224–242. https://doi.org/10.1080/1331677X.2019.1661789
• SARI, R., HAMMOUDEH, S., & SOYTAS, U. (2010). Dynamics of oil price, precious metal prices, and exchange rate. Energy Economics, 32(2), 351–362. https://doi.org/10.1016/j.eneco.2009.08.010
• SCHWERT, G. W. (1990). Stock market volatility. Financial Analysts Journal, 46(3), 23–34.