FACTORS IMPACTING THE PRICE OF THE GOLD: AN EMPIRICAL STUDY OF EGARCH MODEL

Year 2023, , 121 - 129, 15.01.2024

Serkan Çankaya , Murat Konuklar

https://doi.org/10.17261/Pressacademia.2023.1878

Abstract

Purpose- The gold as a fundamental asset has been displaying a high and sharp price volatility in international financial markets. The price dynamics of gold are believed to be influenced by non-linear dependencies with stock market indices, exchange rates, and commodity prices. Therefore, it is rational to examine the factors contributing to the non linear inferences. As a financial asset for the portfolio investment and hedging, gold prices display multilateral and dynamic data patterns this study aims to focus the analysis of price volatility which will contribute to the volatility structure, persistence, and correlated behaviors of gold prices.
Methodology- To display and analyze the persistence level of volatility in the financial markets, a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) specification is employed. GARCH class models are further applied to determine the relevance of the leverage effect of market news, the progress of spillover pattern, and the effects on the risk-premium.
Findings- Volatility in gold price has become an important feature of the financial markets in terms of volatility trading in adjusting the international portfolio investments. The correlated structure of the financial markets and the contagion effects of the news have displayed the asymmetric and complex but time-fragmented portfolio returns in terms of short and long term volatility formation and forecasting.
Conclusion- Since gold’s safe haven status have played a major stake in the determination of the gold price, it is undeniable that the speculators’ rising power, the artificial intelligence utilisation in robo-trading, global and regional geo-political tensions, the recent developments in the risk sentiment in investment portfolios have an increasing amount of influence on gold prices.

Keywords

Gold returns, US Dollar Index, exponential generalized autoregressive conditional heteroskedasticity, volatility persistence

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