Are precious metals hedge against financial and economic variables?: evidence from cointegration tests

Author Affiliation

Javed Iqbal is Professor at the Institute of Business Administration (IBA), Karachi.

Faculty / School

School of Business Studies (SBS)

Department

Department of Mathematical Sciences

Was this content written or created while at IBA?

Yes

Document Type

Article

Source Publication

Journal of Asian Finance, Economics and Business

ISSN

2288-4637

Disciplines

Accounting | Business | Business Administration, Management, and Operations | Econometrics | Economics | Finance

Abstract

This paper investigates the long run hedging ability of precious metals against the risks associated with adverse conditions of economic and financial variables for Pakistan, the USA, China, and India. Monthly data of gold, silver, platinum, stock returns, exchange rate, industrial production, and inflation was collected for the selected economies. Saikkonen and Lutkepohl (2002) unit root test was employed to access the unit root properties of the data series and identify the break dates. Furthermore, this study used the Johansen cointegration test with and without structural breaks to identify the long-run relationship between metals prices and different financial and economic variables. The findings suggest that the time series under study have unit root problem at level with and without structural breaks. Without considering structural breaks, the Johansen trace test indicates that in Pakistan and China, gold, silver, and platinum hold a cointegrating relationship with macroeconomic and financial variables. For the US, gold indicates cointegration which supports the hedging ability of gold against inflation, stock, and industrial production in the long run. The results of the cointegration test after incorporating the structural breaks provide even stronger evidence of the long-run relationship of precious metals and consumer prices, exchange rate, and stock prices.

Indexing Information

HJRS - X Category, Scopus, Web of Science - Emerging Sources Citation Index (ESCI)

Publication Status

Published

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